China Tourism Group Duty Free - H: 2Q revenue likely to slip into YoY decline; market concerns linger on consumer downtrading

Research evidence excerpt

China Tourism Group Duty Free - H: 2Q revenue likely to slip into YoY decline; market concerns linger on consumer downtrading

Forecast returns

Forecast price appreciation 69.8%

Forecast dividend yield 2.7%

Forecast stock return 72.5%

Market return assumption 11.1%

Forecast excess return 61.5%

Company Description

China Tourism Group Duty Free (CTG Duty Free) is a leading duty-free operator in China;

China Tourism Group is its parent company. It operates duty-free stores at entry/exit ports,

Hainan offshore duty-free stores and downtown duty-free stores, as well as airport duty-free

businesses in Shanghai and Beijing.

Valuation Method and Risk Statement

We believe the main downside risks to China's duty-free sector include: 1) persistent

economic sluggishness; 2) slower-than-expected growth in peak season tourist traffic; 3) bad

weather conditions affecting travel; and 4) earthquakes, air accidents, epidemics and other

disasters.

CTG Duty Free - H: Our price target is based on a 17% discount to our price target for CTG-A

(Rmb99.59 based on a DCF-method and in line with the historical average). We believe

downside risks include: 1) declining tourist numbers in Sanya's tourism market; 2) China’s

loosening policies that limit entry to the duty-free industry; and 3) natural disasters or major

epidemics and other force majeure events.

CTG Duty Free - A: We base our price target on DCF. We believe downside risks include: 1)

declining tourist numbers in Sanya's tourism market; 2) China loosening policies that limit

entry to the duty-free industry; 3) natural disasters or major epidemics and other force

majeure events. We believe upside risks include: 1) faster-than-expected recovery of per

capita spending; 2) the introduction of downtown duty-free store policy