Incident: On December 26, Wangfujing and Wushang Group signed an investment cooperation agreement to jointly fund the establishment of Wangfujing Wushang Duty Free Management Co., Ltd. to operate duty-free shops in Wuhan within the Wuhan International Plaza Shopping Center. Among them, Wangfujing invested 40.8 million yuan and held 51% of the shares; Wushang Group invested 39.2 million yuan and held 49% of the shares. The joint venture has a three-member board of directors, including Wangfujing nominated 2 directors and Wushang Group nominated 1 director; the general manager nominated the Wushang Group, and the financial director was nominated by Wangfujing.

Wangfujing enters the city's duty-free business for the first time to achieve a full business layout

The duty-free project in Wuhan is Wangfujing's first duty-free project, marking Wangfujing's entry into the city's duty-free market. Meanwhile, on August 13, '24, Wangfujing won the bid for the exit duty-free projects at Harbin Taiping International Airport and Mudanjiang Hailang International Airport to launch the port duty-free shop business for the first time. The business types and duty-free business channels of Wangfujing duty-free shops have been further broadened, and the layout of all forms of tax exemption on the outlying islands, tax exemption within the city, and tax exemption at the port has been realized.

Open the remaining 7 cities to operate duty-free business qualifications and are expected to win the bid

Looking back at the “Notice on Improving the Duty-free Shop Policy in the City”, the “Notice” proposes “setting up 1 local duty-free shop in each of the 8 cities of Guangzhou, Chengdu, Shenzhen, Tianjin, Wuhan, Xi'an, Changsha and Fuzhou”. Wangfujing took the lead in winning the bid for the Wuhan project, and also raised expectations of winning the bid for the operating qualifications of duty-free shops in the remaining 7 cities in the short term, which can lead to valuation catalyst in the short term, and is expected to improve performance after the medium- to long-term project maturity.

Tax exemptions in the city are expected to help martial artists expand new tracks and enhance competitiveness

The opening of duty-free shops in the city is in line with the Wushang Group's development strategy and will help expand the Wushang Group's new circuit and promote the return of consumption. The city's duty-free shops are located in the city's core business district, which can enhance the international image and commercial appeal of the Wushang Group, enhance competitiveness, and enhance the consumer experience. In addition, this cooperation is also in line with the development strategy of martial arts merchants, doing a good job in introducing the first store, launch, and first exhibition, dig deeper into the brand's exclusive resources, and enhance core competitiveness and expand market influence.

Profit forecast and investment advice: The company is expected to achieve operating income of 11.369/12.164/13.016 billion yuan in 2024-2026, -7%/+7%, respectively, and achieve net profit of 0.57/0.681/0.8 billion yuan, year-on-year, -20%/+17%. The PE corresponding to the current stock price is 32/27/23X, respectively, maintaining the “recommended” rating.

Risk warning: The improvement in the macro-consumption environment falls short of the expected risk, the risk of winning the bid for subsequent projects falls short of the expected risk, and the operation falls short of the expected risk.