occurrences

The company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved revenue of 43.02 billion yuan, a year-on-year decrease of 15.4%, net profit to mother of 3.92 billion yuan, a year-on-year decrease of 24.7%, after deducting non-return net profit of 3.87 billion yuan, a year-on-year decrease of 25.4%. Among them, 2024Q3 achieved revenue of 11.76 billion yuan, a year-on-year decrease of 21.5%, net profit of 0.64 billion yuan, a year-on-year decrease of 52.5%, and net profit after deducting non-return to mother of 0.64 billion yuan, a year-on-year decrease of 52.5%.

Sales in the Hainan market were under pressure, and sales growth at duty-free stores was affected by factors such as insufficient consumer spending intentions and the September typhoon. 2024Q3's sales revenue fell 21.5% year on year. Looking at the overall market in Hainan, according to Haikou Customs statistics, the amount of duty-free shopping on the outlying islands of 2024Q3 was 5.55 billion yuan, a year-on-year decrease of 35.6%. Among them, the number of duty-free shoppers/unit price of duty-free sales customers decreased by 27.2%/11.6%, respectively. Further combined with the passenger throughput data at Hainan Airport, the decline in the conversion rate for duty-free shopping on the outlying islands of Hainan is expected to be related to the diversion of outbound travelers to the high-end customer base. The rise in port duty-free sales slightly made up for the decline in duty free on the outlying islands. Specifically, benefiting from the recovery in inbound and outbound passenger traffic, in the first three quarters of 2024, the revenue of duty-free stores at Beijing Airport (including Capital International Airport and Daxing International Airport) increased by more than 140% year on year, while revenue from duty-free stores at Shanghai Airport (including Pudong International Airport and Hongqiao International Airport) increased nearly 60% year over year.

Costs and expenses are rising, and the net profit level is under more pressure

2024Q3's gross margin was 32.0%, a year-on-year decline of 2.4 pcts, which is expected to be related to an increase in promotion intensity. During the same period, the company's sales expenses/management expenses were 2.16/0.48 billion yuan respectively, and the corresponding sales expense ratio/management expense ratio was 18.4%/4.0%, +0.6pct/+0.5pct compared to the same period. Under pressure from the sales side and upward pressure on costs, 2024Q3's net interest rate to mother was only 5.4%, a year-on-year decline of 3.5 pcts. From an operational perspective, at the end of September 2024, the company's inventory was 18.69 billion yuan, with significant month-on-month and year-on-year optimization. The current inventory turnover period was 186 days.

High moat, maintaining a “buy” rating

Considering factors such as consumer intent, we expect the company's revenue for 2024-2026 to be 58.19/64.93/71.87 billion yuan, respectively, -13.8%/+11.6%/+10.7% year-on-year; net profit to mother will be 5.05/5.99/6.83 billion yuan, respectively, with year-on-year growth rates of -24.7%/+18.5%/+14.0%, respectively. EPS was 2.4/2.9/3.3 yuan respectively. Maintaining a “buy” rating given the company's strong competitive advantage.

Risk warning: macroeconomic growth is slowing down; competition pattern is deteriorating; risk that policy progress falls short of expectations, etc.