Incidents: The company released its three-quarter report on October 31, 2020Q1-3, with operating income of 1,188 billion yuan, a year-on-year decrease of 74.86%; net profit loss of 193 million yuan, a year-on-year decrease of 189.3%; gross profit margin of 19.6%, down 1.1 pct from the same period last year; and a period expense ratio of 39.8%, up 22.9pct from the same period last year. Investment summary: The company's 2020 Q1-Q3 performance was under pressure due to the impact of the epidemic. Revenue from the company's outbound travel and travel products such as “flight+hotel” fell sharply. At the same time, the reduction in air and rail passenger traffic led to a decline in the company's catering business revenue. Therefore, during the reporting period, indicators such as the company's operating income and net profit from the mother changed significantly year over year. At the same time, due to a sharp decline in revenue, enterprise labor costs, site rental costs, and interest expenses are still high, resulting in a marked increase in operating expenses compared to the same period last year. During the company's operating period, collection and settlement work was strengthened, resulting in significant year-on-year changes in indicators such as accounts receivable, advance payments, and advance payments. The company carried out normal investment management, purchase and sale of assets, resulting in significant year-on-year changes in investment real estate, other non-current assets, and goodwill. The strategic transformation in 2020 is gradually being put in place. The company introduced a series of power battles this year, and high-level adjustments were made in October, highlighting the strategic intention for the integrated development of multiple business formats in the future. As the strategic deployment is in place, the company will focus on its core business (travel services & catering services), strengthen business layout such as tax exemption, finance, online, overseas, and industrial funds, and take advantage of the Hainan Free Trade Port policy, and continue to shift its development focus to Hainan. In February 2020, China was introduced and agreed to act as a concerted actor; in April 2020, the company plans to raise 1.16 billion yuan in non-public shares. The issuance targets are Wenyuan Fund (CCI Huawen GP+ Sanya Municipal Government LP), Suqian Hanbang (Jingdong), Huaxia Life Insurance, Shanghai Licheng, and Qingdao Haotian, and signed strategic cooperation agreements with the latter four. In October 2020, Chen Xiaobing, the former chairman of the company, resigned, Liu Jiangtao became the new chairman, and Jin Ying was the CEO. The company's stock of main business (travel services & catering services) can be expected to resume, and there are new profit growth points. In terms of travel services, the company began to adjust its strategic direction in 2020, from focusing on outbound travel to reducing maintenance and arranging domestic travel. At the same time, it has established in-depth cooperation with Hainan many times. In terms of catering services, the company began to transform from air to ground and expand towards social catering services. It is also predicted that the COVID-19 vaccine will be made available to the public as soon as possible. Based on this, the tourism service business is expected to pick up at an accelerated pace. As a traditional outbound travel leader, the company has long had the following four advantages in the travel service business: rich upstream resources continue to accumulate and expand from the six dimensions of aviation, hotels, cruises, attractions, transportation, and visas. In 2019, it participated in TravelYue Group to strengthen the integration of upstream destination resources; and acquire Hong Kong Kangtai Travel Service to strengthen the business layout and overseas group capabilities in South China, Hong Kong and other places. Establish a diversified product system while actively innovating products. The 12 sub-brands cover the world, achieve multiple customer groups in multiple fields and themes, and are deeply involved in sports tourism segments. Actively create high-quality surrounding tours and local leisure and cultural products, and explore the integration of cultural tourism with new retail formats and new business jet consumption scenarios. Leading tourist destination service and operation capabilities. By creating a “zero time difference integration at home and abroad” and “online and offline integration” service experience, we have perfected the closed loop of services from tourism to immigration to old-age care in the field of destination services. Strong online+offline downstream channel sales network. Implement an integrated online and offline marketing network layout with branch offices and stores, actively transform to scenario marketing, strengthen the operation of private traffic, concentrate highly loyal users as members through social marketing, and strengthen the own membership system. Cooperate with JD and Tuniu to explore more new retail service scenarios integrating online and offline. The company's incremental main business (duty-free business) is about to bring marginal improvements to the company's profits. The company began to work in the direction of duty-free business in 2019. This is not only a horizontal expansion in the company's business chain, but also a vertical expansion. The internal consumption cycle guides the return of overseas consumption. As a starting point, the duty-free industry has huge room for development and profit margins at the same time. The company has accumulated huge resources for outbound tourists and tour guides, which can be fully monetized through tax exemptions. The company participated in the duty-free business by cooperating with the leading duty-free company in the city to operate duty-free shops, and has completed three in-depth cooperation with China Delivery Service. China is the largest duty-free operator in China. It already has airport port entry and exit duty-free business and inbound duty-free business. It is also expected to launch duty-free business on the outlying islands in the future. It has an exclusive advantage among currently only 6 duty-free businesses (China Exempt (including Japan and Shanghai), Shenzhen Exemption, Pearl Exemption, China Departure Service, Overseas China, and Wangfujing). As a duty-free leader in the city, China Express chose to cooperate with the company for the following reasons: the company continues to empower duty-free shops from various aspects such as diversion, marketing, and operation, sharing high-quality resources, and collaboratively developing the “tourism+duty-free” business. The company uses its own upstream and downstream resources in the tourism industry to help improve the sales efficiency of duty-free shops while increasing the penetration rate of duty-free purchases. The continuous and in-depth cooperation between the company and Hainan provides the foundation for the company and China to work together to promote tax exemption on the outlying islands. The in-depth cooperation between the company and JD will bring more profit growth points to duty-free shops, such as building smart stores with JD, building duty-free experience stores to fully implement online orders, and giving full play to JD's advantages in logistics and warehousing. The company is strategically cooperating on tax exemption. The two have formed differentiated competitiveness and continued to conquer ground in the duty-free incremental market, with huge room for imagination. The duty-free industry is a golden circuit under favorable policies for the return of overseas consumption. It is conservatively estimated that within five years, the duty-free market in the city will reach 50 billion yuan; combined with Hainan's favorable policies (which have now reached about 130 million yuan/day of duty-free sales on the outlying islands), the outlying islands duty-free market could reach 150 billion yuan within five years. Investment suggestions: Taking into account the expected recovery of the company's stock and main business and marginal improvements in the duty-free business, the release of pessimistic market expectations is gradually being implemented. The company's operating income in 2020-2022 is estimated to be 1.59 billion yuan, 5.08 billion yuan and 8.23 billion yuan respectively, with year-on-year growth rates of -73.6%, 218.7% and 62.1%. Net profit was -180 million yuan, 500 million yuan and 900 million yuan respectively. Earnings per share were -0.22 yuan, 0.51 yuan, and 0.91 yuan respectively, corresponding to PE of -63, 28, and 15 times. The company was given 35 times PE in 2021, and the corresponding stock price was 17.85 yuan. The company was covered for the first time, and a “buy” rating was given. Risk warning: macro-systemic risk and repeated risk of the epidemic, the tax exemption policy is uncertain, the depth of cooperation with China Service falls short of expectations, the company's stock and main business revenue falls short of expectations, and the profit of the duty-free industry falls short of expectations