The Zhitong Finance App learned that on March 28, the stock price of China Free (01880), a leading domestic duty-free company, once surged more than 9%. At the close, it was up 7.29% to HK$78. China's strengthening is related to the 2023 results announced yesterday. According to the announcement, the company achieved operating income of 67.540 billion yuan, up 24.08% year on year; realized total profit of 8.646 billion yuan, up 13.50% year on year; realized net profit attributable to shareholders of listed companies of 6.714 billion yuan, an increase of 33.46% year on year. It is worth noting that China Exempt plans to distribute 16.5 yuan for every 10 shares, for a total of 3.414 billion yuan in cash dividends. The company's cash dividend ratio this year was 50.85%, and the dividend ratio increased.
China Zhongfu explained in its financial report that the company's performance increased by more than 30% year-on-year, mainly because the company grasped the opportunities of consumer recovery and liberalization of immigration policies, focused on stimulating consumption vitality, optimizing the product structure, improving operational efficiency, and recovering the company's main business and restoring profitability.
Looking at single-quarter performance, China achieved operating income of 20.77 billion yuan, 15.09 billion yuan, 14.98 billion yuan, and 16.70 billion yuan respectively from the first quarter to the fourth quarter of 2023, corresponding year-on-year increases of 23.76%, 38.83%, 27.87%, and 10.85%, respectively; net profit to mother was 2,301 billion yuan, 1,565 billion yuan, 1,341 billion yuan, and 1,507 billion yuan, respectively. The corresponding year-on-year increases were -10.25%, 13.86%, 94.22%, and 274.72%, respectively .
Dongwu Securities pointed out that the overall results for the fourth quarter of last year were in line with expectations. Currently, China's free sales in the Hainan market account for 60% of total revenue, and port duty-free sales have great potential for development in 2024. In 2023, Hainan and Shanghai achieved revenue of 396.5 billion yuan and 17.82 billion yuan respectively, up 14% and 26% year-on-year, accounting for 59%/26% of revenue respectively.
Dongwu Securities also pointed out that the supplementary agreement to the rental contract came into effect, and the cooperation mechanism with the airport was straightened out. In February 2024, Beijing Capital Airport/Shanghai Pudong Airport/Guangzhou Baiyun Airport/China's overall international passenger flow recovered to 50%, 87%, 74%, and 81% in the same period in 2019. With the further increase in international passenger flow and pallet support, port duty-free sales have great potential for development in 2024.
China's financial report emphasized that “deepening the cultivation of Hainan” is still the company's strategic priority. The increase in revenue and profit last year was mainly due to the rapid recovery of the Chinese travel market and consumer market. In particular, the Hainan market, which has 6 duty-free shops, experienced an explosive increase in the number of visitors received last year.
In 2023, the total number of visitors received in Hainan Province was 90.62 million, an increase of 49.9% over the previous year; the total tourism revenue reached 181.09 billion yuan, an increase of 71.9% over the previous year. According to data from the “Report on the Work of the Hainan Provincial Government 2024", the sales volume of 12 duty-free shops on the outlying islands in 2023 was 58.09 billion yuan, an increase of 19.3% over the previous year.
According to Haikou Customs data, in 2023, Haikou Customs supervised a total amount of 43.76 billion yuan for duty-free shopping on the outlying islands of Hainan, an increase of 25.4%; the number of shoppers was 6.756 million, an increase of 59.9%; and the number of shopping items was 51.3 million, an increase of 3.8% over the previous year. The per capita shopping amount is 6,478 yuan.
Since China doubled the duty-free shopping limit for 12 duty-free shopping malls in Hainan to 100,000 yuan in 2020, total duty-free spending has also tripled from about 2 billion yuan in 2019 to more than 6.1 billion yuan in 2023. This growth is expected to continue as the entire island of Hainan is exempt from taxes in 2025.
Looking ahead to 2024, China has quoted the “World Tourism Barometer” issued by the United Nations as stating that in 2024, the global international tourism industry is expected to fully return to pre-2020 levels, and preliminary estimates are that it will increase by 2% compared to 2019. With visa facilitation and increased air capacity, it is expected that China's outbound and inbound tourism will accelerate in 2024.
Furthermore, according to estimates by the China Institute of Tourism Research, in 2024, the number of domestic travelers and domestic tourism revenue will exceed 6 billion yuan and domestic tourism revenue, respectively, and will basically return to or exceed 2019 levels. The number of inbound and outbound tourists and international tourism revenue will exceed 264 million visitors and 107 billion US dollars respectively, reaching 88% and 81.5% of 2019, respectively.
However, China emphasized that compared with the rapid transformation of the recovery into a prosperous domestic travel market, the entry/exit market may need 4-5 quarters to return to the peak of the previous cycle. The release of the policy effects of the recovery of the inbound and outbound travel market and the comprehensive repair of the supply chain will require more patience and effort.
Huatai Securities believes that China Free will continue to improve service supply, optimize brand layout, and enhance the overall level of operation. In 2023, 177 well-known domestic and foreign brands were added to the Hainan region, and the “S Store” project was launched against first-tier brand operation and service standards. The annual sales of the 14 “S Store” pilot stores were +65% year-on-year. At the same time, the company is progressing key projects in a steady and orderly manner. As of March 2024, the commercial section of Haitang Bay Phase I Site 2 has been opened and operated; the hotel part is proceeding with the construction of aboveground structures; Haitang Bay Phase III has completed the design of the construction plan; and the construction of Haikou International Duty Free Zone plots 1-3 is progressing in an orderly manner. Maintain a “buy” rating.