\u3000\u3 Guangdong Shaoneng Group Co.Ltd(000601) 888 China Tourism Group Duty Free Corporation Limited(601888) )
Core summary
China Tourism Group Duty Free Corporation Limited(601888) is the subject of the epidemic damage, which is currently the bottom of the fundamentals. The tax-free sector and China Tourism Group Duty Free Corporation Limited(601888) actually continued to be damaged by the epidemic, but at the beginning of the epidemic, it coincided with the release of the new tax-free policy for outlying islands, and the benefits brought by the policy exceeded the negative impact brought by the epidemic. However, with the increasing impact of the epidemic year by year, the impact of the epidemic on the passenger flow in Hainan has also increased. Since March 2022, with the spread of Omicron, which is more infectious, the impact is far greater than previous rounds of the epidemic, and even led to the closure of Sanya International duty-free city twice, which is the bottom position of the company’s fundamentals.
The epidemic recovery industry is continuing to perform, and the China exemption is seriously underestimated, which is the bottom of valuation in the history of the industry or company. The recovery of the epidemic situation is continuing in hotels, some scenic spots, outbound tourism, airports, airlines and other sectors. With the gradual spread and aggravation of the epidemic situation, the valuation of the company also continues to decline. After the recovery of the epidemic situation, the current valuation of China free is far lower than that of other epidemic damaged chain industries, and it is also at the bottom of history in the historical valuation of the company, which is obviously underestimated. We believe that the current valuation cannot reflect the long-term value of the company. With the recovery of the epidemic and the continuous upward fundamentals, the valuation of the company is expected to be gradually repaired.
Enjoy the double boost of industry beta and company alpha, the prosperity continues to rise, the endogenous value increases for a long time, and it is expected to obtain excess returns.
Industry perspective:
1) at the level of epidemic recovery: with the increase of vaccination rate, the continuous promotion of specific drugs, the gradual reduction of epidemic prevention radius and the further promotion of scientific epidemic prevention, the certainty of travel recovery is further improved. Moreover, the epidemic situation in this round is more serious than that in the past few rounds, with a deeper impact, and a higher recovery rebound slope can be expected.
2) in terms of industry space: from top to bottom, the core of tax exemption is the return of consumption. The scale of overseas luxury consumption of Chinese people is more than 10 times that of China’s tax exemption, and there is sufficient return space; From a bottom-up perspective, there is still considerable room for China’s consumption upgrading process, and this trend will exist for a long time. As a medium and high-end consumption channel with obvious price advantages, duty-free formats will directly benefit from the general trend of China’s consumption upgrading.
Company perspective:
1) the core of tax exemption is the supply side, and the bottleneck appears initially. Supply is still the core factor restricting the current growth. After years of high growth, Sanya Haitang Bay store has broken common sense. At present, there is a bottleneck between brand introduction and tourist reception. The mismatch between income and passenger flow growth from January to February 2022 indicates that the reception bottleneck has appeared.
2) the next few years will be the time when the supply side will release the fastest and with the greatest intensity. It is expected to usher in deterministic growth and significantly increase the endogenous value of the company. The duty-free area in Hainan continues to expand, and Haikou international duty-free City, Sanya International duty-free City No. 2, Hexin Island, etc. are expected to contribute a significant increase in area. On the basis of the increase in area, it is expected to open the current brand number and reception bottleneck of Haitang Bay stores, introduce high-priced luxury brands, significantly release the shopping potential of 100000 yuan, and the customer unit price is expected to be significantly boosted. As an important part of duty-free business, the city’s frequent store policies and stronger expectations of landing are expected to inject new vitality into the duty-free market.
3) the leading position is stable, and the core reason for the decline of short-term profitability is the decline of passenger flow, which is unlikely to deteriorate further in the future. Scale advantage, deep moat, the leader is strong. From a policy point of view, guiding the return of consumption needs to be completed by a leader who can compete with overseas duty-free merchants; From a fundamental point of view, the company has occupied the core location of Hainan. Relying on the scale advantage of the world’s first tourism retailer, the company has more significant advantages in brand matrix, product attraction and gross profit margin, and has a stronger ability to bear the price war. The supply chain of small and medium-sized duty-free businesses relying on partners is unstable, and it takes a long time to build their own supply chain. The core factor of the decline in profitability in the second half of 2021 is the decline in passenger flow rather than the deterioration of the pattern. With the formation of a consensus on benign competition in the industry and the continuous improvement of the company’s endogenous value, there is little possibility of further deterioration of the competition pattern in the future.
Investment suggestion: the tax-free industry has a strong logic for a long time. China Tourism Group Duty Free Corporation Limited(601888) as a leader in the industry has a solid position. At present, the market still gives the China exemption valuation based on the performance of the epidemic. Under the assumption that the epidemic situation does not continue to worsen, the China exemption valuation is obviously underestimated, and the current valuation cannot reflect the long-term value. In the future, the tax-free area of China free Hainan will increase significantly, and the brand system and internal value will continue to improve. At present, it is the bottom of fundamentals and valuation. The logic of epidemic recovery has been deduced in other travel sectors. We look forward to the interpretation of recovery market after China’s relay epidemic free. We expect that from 2022 to 2024, the company will realize an operating revenue of 69.188/79.038114.129 billion yuan and a net profit attributable to the parent company of 10.498141.31/17.394 billion yuan, corresponding to 33.85/25.15/20.43xpe. Maintain the “buy” rating.
Risk tip: the epidemic repeatedly affects travel, intensified competition leads to price war, the investment and construction progress of new stores is less than expected, the introduction of brands is less than expected, and the overseas competition is intensified.
