HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Tourism Group Duty Free / Equity Bottom-Up

<ul>
<li>While its share price has collapsed, <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">China Tourism Group Duty Free (1880 HK)</a> is still facing many challenges and uncertainties which render it unattractive at current level.</li>
<li>Average duty free spending per customer in Hainan is 46% lower than the peak and 26% lower YoY in Mar 2024, and the downtrend looks to continue.</li>
<li>The government's efforts to strike down purchasing agents in Hainan duty free products and the island's change to a duty-free zone are also negative developments.</li>
</ul>


While its share price has collapsed, China Tourism Group Duty Free (1880 HK) is still facing many challenges and uncertainties which render it unattractive at current level.
Average duty free spending per customer in Hainan is 46% lower than the peak and 26% lower YoY in Mar 2024, and the downtrend looks to continue.
The government's efforts to strike down purchasing agents in Hainan duty free products and the island's change to a duty-free zone are also negative developments.


Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyze the monthly Hong Kong Connect flows with our data engine.</li>
<li>We tabulate the top stocks by inflows, outflows, and holding by mainland investors.</li>
<li>We highlight inflows into ICBC, Tencent, CCB, Yankuang, Sinopec, and outflows from HSBC, Meituan, HKEx, China Hongqiao, CNOOC. </li>
</ul>


We analyze the monthly Hong Kong Connect flows with our data engine.
We tabulate the top stocks by inflows, outflows, and holding by mainland investors.
We highlight inflows into ICBC, Tencent, CCB, Yankuang, Sinopec, and outflows from HSBC, Meituan, HKEx, China Hongqiao, CNOOC. 


Hong Kong Connect Flows (July): 11 Months of Inflows

Analyst

Steve Zhou, CFA

<ul>
<li>Since my previous insight on <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">China Tourism Group Duty Free (1880 HK)</a> in October 2023, the stock has declined 33%, and year-to-date, the stock has declined 13%.</li>
<li>The company faces headwinds from continued overall weakness in Hainan duty free sales and potentially increased competition in Hainan.</li>
<li>The company already announced preliminary 1Q24 results, with sales down 9% yoy and net profit flat.  The company is trading at 18x 2024 earnings.</li>
</ul>


Since my previous insight on China Tourism Group Duty Free (1880 HK) in October 2023, the stock has declined 33%, and year-to-date, the stock has declined 13%.
The company faces headwinds from continued overall weakness in Hainan duty free sales and potentially increased competition in Hainan.
The company already announced preliminary 1Q24 results, with sales down 9% yoy and net profit flat.  The company is trading at 18x 2024 earnings.


China Tourism Group Duty Free (1880 HK):  Headwinds Persist

<ul>
<li>Our earnings projections for <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corporation-limited" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (1880 HK)</a> are 14% and 18% below market consensus respectively. We think these are more realistic expectations.</li>
<li>At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.</li>
<li>Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.</li>
</ul>


Our earnings projections for China Tourism Group Duty Free Corp Ltd (1880 HK) are 14% and 18% below market consensus respectively. We think these are more realistic expectations.
At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.
Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.


CTG Duty Free (1880 HK): Our Earnings Forecasts and Views on H-Share Fair Value

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">China Tourism Group Duty Free (1880 HK)</a> announced preliminary results for 3Q23 which came in below market expectations.</li>
<li>Compared to the previous quarter 2Q23, sales declined by 1% q-o-q, while net profit margin declined from 10.4% in 2Q23 to 8.9% in 3Q23. </li>
<li>The company (H-share) is trading at 26x 2023E PE and 23x 2024E PE, still expensive as visibility is low and derating continues. </li>
</ul>



China Tourism Group Duty Free (1880 HK) announced preliminary results for 3Q23 which came in below market expectations.
Compared to the previous quarter 2Q23, sales declined by 1% q-o-q, while net profit margin declined from 10.4% in 2Q23 to 8.9% in 3Q23. 
The company (H-share) is trading at 26x 2023E PE and 23x 2024E PE, still expensive as visibility is low and derating continues. 


China Tourism Group Duty Free (1880 HK):  Weak Golden Week Trends And Still Expensive

China

China Tourism Group Duty Free Corporation Limited engages in sales of duty free goods and tax goods. The Company sells tobacco, wine and spirits, perfume, cosmetics, fashion and accessories, watches, jewelry, food, luggage products,and other products. China Tourism Group Duty Free also engages in investment and development of tourism destination commercial complexes.

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China Tourism Group Duty Free (1880 HK)

CTG Duty Free (1880 HK): Down and Out?

Duty free sales in Hainan have another disappointing month in Apr. Sales value was Rmb2.2bn (-44.5% YoY), customer number was 452,000 (-23.7%), and...

Osbert Tang, CFA

Hong Kong Connect Flows (July): 11 Months of Inflows

We analyzed the Hong Kong Connect Scheme for July and highlighted inflows into ICBC, Tencent, CCB, Yankuang, Sinopec, and outflows from HSBC,...

Ke Yan, CFA, FRM