Photo source: Visual China

BLUE WHALE NEWS, Oct. 18 (Reporter Sun Yu) The day after China Finance (601888.SH) announced the results report for the first three quarters of this year, it officially announced personnel changes involving the company's chairman and vice chairman.

On the evening of the 17th, China's exemption announcement stated that Fan Yunjun was elected as the chairman of the board and Liu Kun was elected as the vice chairman. The announcement said that recently, the board of directors of the company received a written resignation report submitted by Chairman Wang Xuan. After his resignation, Wang Xuan will continue to hold other positions. A month ago, Chen Guoqiang, who was the vice chairman of China Finance Committee at the time, resigned due to retirement reasons.

According to public information, Fan Yunjun was born in 1972 and has worked for China Mobile and China Unicom for many years, serving as chairman of China Mobile Beijing Co., Ltd., senior vice president of China Unicom, and chairman and CEO of Simbaco Co., Ltd., a wholly-owned subsidiary of China Mobile. Liu Kun was born in 1969 and has held positions such as general manager and assistant general manager of the Collaborative Development Department of China General Technology (Group) Holdings Co., Ltd.

China is currently facing a decline in performance. What kind of adjustments will the new chairman lead the company to make in the future?

Performance is under pressure

China **** is a leader in the domestic travel retail industry, and the company's business focus is tax exemption on the outlying islands of Hainan. According to the data, as of January of this year, there are 12 businesses with duty-free business on the outlying islands in Hainan, 7 of which are covered by China free of charge.

Since this year, sales at the duty-free market on the outlying islands of Hainan have continued to be under pressure, and the number and amount of duty-free shoppers have both declined. According to Haikou Customs data, from January to June 2024, duty-free sales on the outlying islands were 18.46 billion yuan, -29.9% year-on-year; the number of shoppers was 3.361 million, -10.0% year-on-year. Sales continued to decline in July-August. Duty-free sales on the outlying islands were 3.87 billion yuan, or -34.3% YoY. The number of shoppers was 0.803 million, or -20.7% YoY.

Affected by this, China continues to be pressured to operate free of charge. Judging from China's three-quarter earnings report released on the evening of the 16th, the company's revenue was 43.02 billion yuan, -15.38% YoY; net profit to mother was 3.92 billion yuan, or -24.70% YoY. Furthermore, the performance report shows that as of the end of the 3rd quarter of this year, China's total assets were 75.585 billion yuan, or -4.16% year over year. As of today's close, China Free's total market value in the A-share market was 140.7 billion yuan, and the total market value in the Hong Kong stock market was HK$109.4 billion.

According to the League of Nations Securities Research Report, the decline in duty-free sales on the outlying islands may be related to the diversion of high-end outbound travelers. Judging from the passenger throughput data at Hainan Airport, the conversion rate for duty-free shopping on the outlying islands of Hainan has declined.

According to the Shenwan Hongyuan Research Report, according to estimates, the company achieved profit of 0.638 billion yuan in the third quarter of 2023, a year-on-year decline of 52%, and the performance was lower than expected. Considering that the terminal consumer side is under pressure and that the diversion of travel consumption in Hainan, such as outbound travel, etc., has yet to see an inflection point, the company's profit forecast was lowered.

What are the future opportunities?

China's performance in the first three quarters of this year is not without highlights.

According to the quick results report, the gross margin of the company's main business in the first three quarters of this year was 32.57%, up 1.09% year on year.

Furthermore, benefiting from the expansion of visa-free countries and the continuous optimization of visa-free transit policies, sales at entry/exit duty-free stores have increased dramatically. Among them, revenue from duty-free shops at Beijing Airport increased by more than 140% year on year, and revenue from duty-free shops at Shanghai Airport increased by nearly 60% year on year.

At the business level, in the first three quarters of this year, China Free introduced 165 brands of products such as perfumery, luxury goods, food and department stores, etc., accounting for more than 40% of the number of Chinese brands. Up to now, China has more than 1,400 exempt brands and sells more than 0.35 million SKUs. The number of duty-free brands ranks first in China.

Referring to China's future development opportunities, Shen Wan Hongyuan's research report points out that in the short to medium term, we need to focus on the increase in inbound and outbound passenger flow, the resulting increase in port duty-free sales, and the opening of new stores in the city in line with the city's duty-free policy. In the long run, attention should be paid to the comprehensive operation of Hainan's tourism resources and the comprehensive operation of performing arts, exhibitions, etc. to drive the further growth of tax exemptions on the outlying islands.

Looking specifically at the expansion of duty-free shops in the city, according to the new regulations, the current 19 duty-free shops in the city will unify policy management in the future, and at the same time, it is required to set up 1 duty-free shop in each of the 8 cities including Guangzhou and Chengdu. The sales target of duty-free shops in the city is for travelers who will leave the country within 60 days. The New Deal has a longer purchase window, expands sales targets to Chinese tourists, and does not set sales limits.

It should be noted that the 19 duty-free shops that have already opened are all operated by China Free Trade Service (49% of China Exemption). Industry insiders believe that China Free already occupies a high-quality card position in the city of Beishang, and at present, it is highly competitive.