Key points of investment:
The company announced its 2024 quarterly report, and the results were in line with market expectations. The company achieved revenue of 18.807 billion yuan in the first quarter, a year-on-year decrease of 9.4%, achieved net profit of 2,306 billion yuan, an increase of 0.25% over the previous year, and realized net profit without deduction of 2,299 billion yuan, an increase of 0.15% over the previous year. The 24Q1 company's gross margin was 33.31%, up 4.31pct year on year, and the sales expense rate/ management expense ratio was 12.8%/2.5%/-0.7%, respectively, +3.0/+0.4/+0.8pct, respectively. The company's net profit margin for the first quarter was 12.95%, up 1.08pct year on year.
Duty-free sales are popular on Hainan's outlying islands during the holidays. The “exhibition+tax exemption” effect was remarkable during the consumer fair, inventory levels were reduced, and the structure was optimized. According to Haikou Customs data, during the Spring Festival/Qingming holiday period, Haikou Customs supervised a total amount of 2,489/271 billion yuan in duty-free shopping on the outlying islands, achieving an average daily sales of 311/90 million yuan. The number of duty-free shoppers was 2977/47,000, and the per capita consumption amount was 8,358/5767 yuan. From April 13 to 18, Hainan hosted the 4th Consumer Fair. According to statistics from Haikou Customs, during the consumer fair, Haikou Customs supervised a total of 459 million yuan worth of duty-free shopping on the outlying islands, with 82,900 shoppers and 492,200 shopping items. According to the company's announcement, the company's inventory in the first quarter was 17.59 billion yuan, down 16% from the end of '23. The inventory turnover rate continued to improve. The supply chain reform implemented centralized procurement results throughout Hainan Island were remarkable.
With the implementation of the new rent agreement and the steady recovery of passenger traffic at the airport, the airport's sales volume and profit are expected to increase significantly.
On December 26, 23, the company signed supplementary airport rent agreements with Shanghai Airport and Capital Airport. The deduction rate and guaranteed rent were reduced. The agreements took effect on December 1, 23, and January 1, 24, respectively. The number of outbound visitors increased significantly in the first quarter of '24. According to official data disclosed by Shanghai Airport, the passenger throughput of international flights at Shanghai Pudong Airport was 5.945 million passengers, an increase of 519.5% over the previous year, returning to 75.3% in the same period in '19. Visitors entering and leaving key airports are expected to continue to recover.
High-end products and luxury brands have introduced and broadened product categories, and Hainan travel shopping has entered internationalization. The advantages of the free supply chain between China and China are remarkable. The results have been remarkable after the implementation of the buy and sell policy. Sanya International Duty Free Mall Phase II LV and DIOR opened in the fourth quarter of 2023, and the C Zone Global Beauty Plaza was unveiled on December 28, 23. The company continues to enrich the shopping experience and high-profit layout of fashion, jewelry, tobacco and alcohol categories. Since the implementation of the “Buy Now and Collect Now” policy on April 1, 23, the number of items purchased using the two new delivery methods has exceeded 4.3 million, and the purchase amount has exceeded 4 billion yuan. Among them, the total sales amount of “buy now and receive” has exceeded 3.9 billion yuan, and the total sales amount of “guarantee and instant delivery” has exceeded 87 million yuan.
Maintaining a “buy” rating: We believe that the international competitiveness of China's duty-free industry is still gradually increasing. In the long run, upgrading the company's category structure will help further increase profit levels. The restoration of duty-free entry and exit airports and the city's tax exemption policy are expected to provide an increase. We maintain our 24-26 profit forecast. We expect to achieve 78.02/93.59/10.833 billion yuan in 24-26, corresponding to 19/16/14 times PE in 24-26, maintaining a “buy” rating.
Risk warning: The terminal conversion rate falls short of expectations, the city's tax exemption policy falls short of expectations, and the duty-free competition on Hainan's outlying islands heightens the risk.