\u3000\u3000 China Tourism Group Duty Free Corporation Limited(601888) (601888)
Key investment points:
Event: the company issued the announcement of performance increase in 2021. The net profit attributable to the shareholders of the listed company expected to be realized by the company in 2021 is about 9.4 billion yuan to 10.1 billion yuan, an increase of about 3.3 billion yuan to 4 billion yuan over the same period of the previous year (before retroactive adjustment), a year-on-year increase of about 54% to 66%; Compared with the same period of the previous year (after retroactive adjustment), it increased by about 3.3 billion yuan to 4 billion yuan, a year-on-year increase of about 54% to 66%. After deducting non recurring gains and losses, the net profit attributable to shareholders of listed companies expected to be realized by the company in 2021 is about 9.3 billion yuan to 10 billion yuan, an increase of about 3.3 billion yuan to 4 billion yuan over the same period of last year (before retroactive adjustment), a year-on-year increase of about 55% to 67%.
Comments:
Q4 net profit attributable to parent decreased. In 2021q4, the net profit attributable to the parent company was about RMB 900 million to RMB 1.6 billion, a year-on-year decrease of about 70% to 46%. From 2021q1 to 2021q3, the net profit attributable to the parent company in a single quarter was 2.849 billion yuan, 2.51 billion yuan and 3.132 billion yuan respectively, of which the net profit attributable to the parent company of 2021q3 was about 1.252 billion yuan after deducting the tax exemption preferential tax rate of Hainan outlying islands and the charge back fee of rent reduction and exemption of capital airport. The intensified competition among duty-free shops in outlying islands led the company to increase discounts. In addition, in June 2021, the company relied on China and continued to be disturbed by the scattered epidemic and the proportion of online sales increased. The profitability of the company was greatly impacted in 2021. However, the decline in the net profit attributable to the parent of the company in 2021q4 narrowed significantly or even rebounded slightly, indicating that the most difficult time of the company is basically over and is expected to improve gradually in 2022.
Q4 the tax exemption of outlying islands increased rapidly. In 2021, Haikou customs supervised 49.5 billion yuan of duty-free shopping in Hainan outlying islands, 6.72 million people, 70.45 million pieces of shopping, and 7368 yuan per capita, an increase of 80%, 49.8%, 107% and 20.2% respectively compared with the previous year. Among them, the sales of cosmetics, watches and jewelry ranked among the top three. In 2021q4, the amount of duty-free shopping on outlying islands is about 14 billion yuan, the number of shopping pieces is about 1972 million, and the number of shoppers is about 1.59 million. The amount of duty-free shopping on outlying islands is better than that in 2021q2 and that in 2021q3. In 2021q4, the tax exemption on outlying islands improved rapidly month on month, and was relatively less affected by China’s scattered epidemic.
Tax exemption competition on outlying islands is expected to improve. Since the end of 2020, cetic and SDC have obtained the tax-free qualification for outlying islands, no new enterprise has been approved for tax-free operation qualification. By the end of 2021, only five tax-free enterprises in Hainan that have obtained the qualification of offshore duty-free are operating offshore duty-free stores, and overseas Chinese, Zhumian, Wangfujing Group Co.Ltd(600859) and other tax-free operators have not obtained the qualification of offshore duty-free. Therefore, it is unlikely that China will follow the example of South Korea in issuing a large number of tax-free licenses, and the competition pattern of offshore duty-free is initially stable, The entry of new competitors in a short time is less likely to bring price competition. As the leader of tax exemption in outlying islands, when the proportion of online sales is expanded and the gross profit margin is reduced, the decline of net profit attributable to the parent company in 2021q4 is significantly reduced compared with Q3, and the price competition of tax-free operators in outlying islands is gradually improved.
The construction of free trade port may guide the tax-free and reasonable competition of outlying islands. With the dual assistance of covid-19 epidemic restriction on outbound tourism and the construction of Hainan free trade port, after the introduction of the new policy of tax exemption for outlying islands in 2020, the number of tourists in Hainan has not increased significantly compared with the same period in 2019. The tax exemption for outlying islands is still in the stage of “tourism + tax exemption”, and is highly dependent on Hainan tourists. Hainan is in the initial stage of the construction of a free trade port. The tourism environment and the attraction of duty-free shopping are relatively weak. The tax-free growth of outlying islands urgently needs the entry of LV and other top luxury brands. Relying on the siphon effect of top luxury brands, Hainan will build a world-famous consumption center comparable to chancellery street in France and the Fifth Avenue in New York. At present, the common 7-20% discount for duty-free shops in Hainan outlying islands is inconsistent with the positioning of high-end luxury brands, which is difficult to attract high-end luxury brands. In the long run, the construction of Hainan free trade port should build Hainan into an international consumption center. It is expected to introduce policies to limit the excessive competition between outlying duty-free stores and reduce the discount range of outlying duty-free stores.
Investment suggestion: the company is a global leader in tourism retail and occupies a leading position in China’s duty-free retail market. The tax-free business of outlying islands is expected to benefit from the construction of Hainan free trade port and the new tax-free policy for outlying islands. Haikou international duty-free city is expected to be put into operation in 2022 to consolidate the tax-free status of outlying islands. It is estimated that the company’s earnings per share from 2021 to 2022 will be 5.00 yuan and 6.11 yuan respectively, and the current share price corresponding to PE will be 40 times and 33 times respectively, maintaining the “recommended” rating of the company.
Risk tips: intensified industry competition, policy changes, less than expected construction of Hainan free trade port, significant fluctuations in freight and exchange rate, macroeconomic downturn, repeated epidemic situations, etc.
