Incident: The company successively won bids for three duty-free shop projects in Shenzhen, Guangzhou and Xi'an. Combining 6 duty-free shops in the city that were already in operation before the new policy was introduced and are applying for transformation. Currently, China Free Group has duty-free shops in the city in 9 cities.

Winning the bid for the right to operate duty-free shops in Guangzhou, Shenzhen and Xi'an provided an opportunity for the company to give full play to its advantages, integrate existing procurement and operating resources, and create new retail models of “duty-free plus tax”, “import+domestic”, and “offline+online”.

The company is a leading domestic tax exemption and has achieved a mature layout of outlying island tax exemption, port tax exemption, and city tax exemption. On December 17, the State Administration of Immigration fully relaxed and optimized the visa-free transit policy, extending the stay time for visa-free transit foreigners from 72 hours and 144 hours to 240 hours. After the visa-free policy was announced, the popularity of relevant destinations in China skyrocketed, favoring the growth of the duty-free business in the city. China Free has the most extensive layout of duty-free shops in the city, leading the way in benefiting.

The duty-free sector is a core asset for domestic demand and is strongly correlated with economic expectations. In the future, we will continue to pay attention to Hainan's customs clearance policy and the layout of various taxable brands and operators. If the competitive pattern is better than expected, the company's performance and valuation are expected to improve upward. In addition, we also need to pay attention to the winning bid for the remaining duty-free shop qualifications in the city and the pace of restoration of inbound and outbound passenger traffic.

Profit forecast and investment advice: The company's 24-26 revenue is expected to be 58.9/65.4/71.3 billion yuan, yoy -13%/+11%/+9%, respectively, and net profit to mother is 5/6/6.6 billion yuan, yoy -26%/+22%/+10%, respectively. The PE corresponding to the current stock price is 29/24/21X, maintaining the “recommended” rating.

Risk warning: the risk of macroeconomic fluctuations, the risk that the recovery of consumption power falls short of expectations, and the risk of policy implementation falling short of expectations.