China Tourism Group Duty Free: Continue to Favor the Release of Leading Company's Earnings Flexibility; Value the Bottom-Entry Opportunity!

English summary

# Q2 Validates Hainan's Profit Flexibility Again. 26H1 revenue was RMB 27.59 billion, -2.0% YoY, net profit attributable to shareholders RMB 3.11 billion, +19.5% YoY. Despite significant pressure from Capital Airport, Shanghai Airport, and online channels in H1, Hainan's considerable profit flexibility was validated again. # Hainan's off-season resilience growth; CDFG outperforms the industry. In 26Q2, island-wide offshore duty-free sales increased 4% YoY. The industry's off-season overall showed resilient growth supported by core categories such as beauty and premium products. We estimate CDFG's Hainan sales grew ~10% YoY in Q2 (with duty-free part up ~6%), significantly outperforming the industry. As peak season approaches, data improvement is expected. # H2 improvement expected in core airports and online duty-paid businesses. Capital and Shanghai airports have largely resumed normal operations after earlier transition phase impacts. CDFG's online brand authorization under Sunrise is proceeding orderly, with steady improvement in sales, and Hainan member purchases have absorbed some online demand. We are optimistic about H2 improvement flexibility. # DFS has achieved good synergy. We expect DFS, after consolidation in March, to benefit from strong Macau and Hong Kong sales, generating positive profit contribution.…