Key points of investment:

Investment advice: We use the PE valuation method. We expect the company's net profit attributable to the parent company in 2020-2022 to be 690 million, 7.89 and 874 million yuan respectively. The corresponding EPS is 0.33, 0.38 and 0.42 yuan. Referring to peer valuations, considering the company's expectations of buying duty-free assets, a certain valuation premium will be given. The company's 25xPE in 2021, the corresponding target price is 9.5 yuan. The first coverage gave a rating for increasing holdings.

Overseas consumption continues to return, and Zhuhai has great potential. ① China's per capita consumption of outbound tourists has been declining for 4 consecutive years, and the duty-free industry is growing rapidly. ② In 2019, the number of people entering and leaving Zhuhai was 173 million/ +12.3%, accounting for 26% of the country. The number of inbound and outbound passengers at Gongbei Port reached 14.5 billion people/+7.4%.

③ Zhuhai and Hengqin are expected to see favorable policies. ④ On 2020/10.1-7, the Gongbei border inspection released nearly 1.6 million inbound travelers, up more than 50% from 2019.

Open up 3 more space to take off. ① Zhuhai Duty Free is currently the second largest duty-free company in the country, with a significant cost advantage. It has a total of ten duty-free shops, divided by port, including Gongbei, Jiuzhou Port, Hengqin, the Cross-border Industrial Zone in Zhuhai, and Tianjin Binhai International Airport. ② The company spent 1,651 million yuan to purchase about 49.4 acres of land in the Sanya headquarters economy and central business district. There is huge room for imagination.

③ Optimizing categories and supply chain: The company is expected to increase the proportion of perfumery and enhance direct harvesting capacity. ④ After the renovation of Gongbei Port, the operating area will be greatly increased to enhance the shopping experience.

Real estate is developing steadily, and the big health sector is actively deployed. ① The real estate business continues its “Zhuhai-based, regional layout” development strategy. ② Purchase Kehua biological assets and expand into the field of big health.

Risk warning: macroeconomic fluctuations affect tourism demand; the liberalization of Hainan's duty-free policy falls short of expectations; the competitive pattern of the duty-free industry changes; the risk that companies will fail to acquire duty-free assets.