CTGDF sales declined 3% YoY in late May; reduced footfall is main cause

Overview

This report is an event commentary by Morgan Stanley on China Tourism Group Duty Free (1880.HK/601888.SS). The core focus is the latest changes in Hainan duty-free sales data after the May Day holiday. Data shows a year-over-year decline in sales in late May, mainly affected by reduced footfall, leading institutions to take a cautious stance on short-term stock price momentum, but maintaining an 'Equal-weight' rating and HKD 77 target price.

Core views

Significant slowdown in sales growth: During the period from May 6 to 31, Hainan duty-free sales fell 3% YoY, underperforming Morgan Stanley's expectations. Looking at the entire month of May, sales were flat YoY, showing a clear deceleration trend compared to the high growth of March (+25%) and April (+10%). Volume Down, Price Up Structure: The main driver of sales decline was the contraction in footfall, with footfall down 5% YoY in late May. Meanwhile, the number of items purchased per shopper also decreased by 3%. However, a notable positive signal is that per shopper spending and ASP per item increased by 2% and 5% YoY respectively, indicating consumption tiers or price support still exist. Macro and Industry Background: In May, total imports of beauty and cosmetics to Hainan (including duty-free and general trade) fell 5% YoY, slightly better than April's -4%, showing overall category demand still faces pressure. The report believes this demand slowdown trend will continue to suppress stock performance in the short term. Valuation and Rating: The institution maintained the 'Equal-weight' (Equal-weight) rating on China Tourism Group Duty Free H-shares, with a target price of HKD 77, implying approximately 43% upside. For A-shares, it assigns a 15% discount relative to H-share valuations, corresponding to a 2026 forecast P/E of 27x (lower than A-shares' 32x). Long term, the institution remains optimistic about the healthy growth of the Hainan tourism retail market and its impact on profitability, but needs to be wary of risks brought by macroeconomic slowdown and disposable income pressure in the short term.

Analysis framework

Morgan Stanley adopted a typical 'High-Frequency Data Tracking + Volume-Price Decomposition' analysis method. First, monitor monthly high-frequency sales changes through customs and sales data to identify inflection points in growth rates; second, decompose sales into three dimensions of 'Footfall × Items Purchased Per Person × Average Selling Price Per Item' to accurately locate the source of growth or decline (confirmed as footfall-driven decline in this case); finally, combine industry overall import data to verify trends, anchor valuation based on forward P/E ratios, compare against historical averages and A/H share premiums to draw investment conclusions.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Decompose sales revenue into volume factors (footfall, item count) and price factors (average price, spend per customer)

  By decomposing sales into footfall, items purchased per person, and average selling price per item, help investors judge whether sales changes are caused by lack of popularity or consumption downgrading. This article clearly states that the sales decline mainly stems from reduced footfall, rather than price drops.

• Valuation MethodologyPE/PEG valuation

  Valuation based on projected P/E ratio and Price/Earnings-to-Growth (PEG) ratio

  The institution uses 2026 projected P/E ratio as a valuation anchor, and references PEG metrics (Target P/E implies 1x PEG) to assess the match between company growth and valuation, while comparing industry averages and historical percentiles.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Tourism Group Duty Free (1880.HK)

  Directly benefits from Hainan duty-free sales, but also directly bears the impact of footfall decline

  Strengths

  Per capita spending and ASP YoY positive growth, showing premium consumption resilience; Long-term benefit from Hainan tourism retail market growth

  Weaknesses

  Heavy asset model leads to low ROE; Growth overly dependent on Hainan business, insufficient diversification

  Comparison

  H-share valuation has 15% discount compared to A-shares, offering more safety margin

  Risks

  Macro economy slowdown inhibits disposable income; Retail channel price competition intensifies

• China Tourism Group Duty Free (601888.SS)

  A-share listed portion of the same entity

  Weaknesses

  Higher valuation (2026 forecast P/E 32x), located 1 standard deviation above the average since 2017

  Comparison

  Premium compared to H-shares, relatively lower cost-performance ratio

  Risks

  Valuation correction risk; Intensified market competition

Key data

• May 6-31 Duty-Free Sales YoY-3%Below expectations, mainly dragged by footfall
• May 6-31 Footfall YoY-5%Main driver of sales decline
• Total May Sales YoY0%Significantly slowed compared to March (+25%) and April (+10%)
• May Hainan Beauty/Cosmetics Import YoY-5%April was -4%, demand remains weak
• H-Share Target Price77 Hong Kong DollarsCorresponds to 2026 projected P/E 32x

Impact & implications

The research report believes that short-term demand slowdown and footfall decline will suppress CTGDF's stock price momentum, investors should remain cautious in the near term. However, considering the resilience of per capita consumption and average price, as well as the long-term policy benefits of the Hainan Free Trade Port, the company's long-term fundamental logic has not been fundamentally undermined. For holders, current valuations have reflected some pessimistic expectations, but lack immediate upward catalysts.

Risks

• Overall economic slowdown and pressure on household disposable income
• Intensified price competition among retail channels
• If government further opens duty-free market (Hainan and mainland), competition may intensified

What to watch

• Favorable implementation status of Hainan Free Trade Port and city-level duty-free policies
• Improvement in consumer spending, especially in beauty product categories
• Consumption upgrade trend, i.e., change in proportion of non-beauty luxury goods