Description of the event

Revenue and net profit both declined in the third quarter, and the profit side continued to be under pressure

On October 30, 2024, China released its report for the third quarter of 2024. 2024Q1-Q3's revenue was 43.021 billion yuan/yoy -15.4%; net profit to mother was 3.92 billion yuan/yoy -24.7%.

Looking at 2024Q3, the company's revenue was 11.756 billion yuan/yoy -21.5%; net profit to mother was 6.3.6 billion yuan/yoy -52.5%, and the company is clearly under pressure in terms of revenue and profit.

Incident reviews

Gross margin declined, sales expenses rose, and overall investment increased

2024Q3's gross profit margin was 32.0%, down 2.4% year on year; financial expenses ratio was -1.6%, down 0.1% year on year; the company's sales/management/R&D expenses ratio was 18.4%/4.0%/0.1%, respectively, up 0.56/0.48/0.01pct year on year. In the context that the outlying islands tax exemption policy has not yet liberalized the duty-free operation of domestic alcohol categories, the company is strengthening the role of innovative tax payment business models in the travel retail market. On September 19, 2024, the first Wuliangye specialty store in the travel retail channel opened at the Sanya International Duty Free Mall. The company increased its investment in marketing, management, R&D, etc. in 2024Q3, leading to a year-on-year increase in sales expenses and a year-on-year decline in gross margin.

Port duty free sales are strong, and China Free continues to benefit from market recovery

Benefiting from the visa-free policy and the resumption of international flights, port duty-free sales performed well. The company's duty-free shop revenue at Beijing and Shanghai airports increased by more than 140% and nearly 60%, respectively. The company introduced 165 new brands in the first three quarters, especially more than 40% of domestic brands, showing consumer recognition of Guochao products. Overall, China Free has shown a positive development trend in both the city and port duty-free markets.

Affected by seasonal typhoons, offshore duty-free sales in Hainan are under pressure

Due to the typhoon in September, both passenger traffic and duty-free sales in Hainan were under pressure. According to Haikou Customs data, 2024Q1-Q3 duty-free sales on the outlying islands of Hainan were 24 billion yuan/yoy -31.3%, and the number of duty-free shopping on the outlying islands of Q1-Q3 was 4.466 million/yoy -14.9%. Among them, duty-free shopping on the outlying islands of Hainan was 0.302 million/ yoy -40.0% in September.

Risk warning:

1. Changes in tax exemption policies;

2. The recovery in consumer consumption fell short of expectations.