Hainan Sales Maintain Rapid Growth and New Projects Progress as Planned; Goldman Sachs Retains Neutral Rating on China Tourism Group Duty Free

Overview

This report summarizes China Tourism Group Duty Free management's post-earnings conference call, focusing on Hainan sales and the peak-season outlook, new projects in Haikou and Sanya, integration of the Hong Kong and Macau DFS businesses, airport-store adjustments, and membership-system integration. Goldman Sachs acknowledges the operational improvements but believes structural pressures have yet to dissipate and therefore maintains its Neutral rating.

Core views

The Hainan business was the primary topic of the conference call. The company disclosed that 1H26 Hainan revenue reached Rmb18.6bn, up 23% year on year, exceeding the overall Hainan duty-free market's 19% growth. Categories including skincare and beauty, sportswear, 3C electronics, gold and jewelry, and watches all maintained strong momentum, while gold jewelry prices at the company's duty-free stores are generally approximately 10% lower than in duty-paid channels. A higher contribution from offline channels resulted in a more favorable revenue mix, while the company's disciplined pricing of beauty products during the 618 shopping festival helped lift 2Q26 gross margin to 34.3%, up 1.9 percentage points year on year and 0.7 percentage points quarter on quarter. Management remains positive on 2H26 and expects sales to improve further during the peak season from October to March of the following year. Specific measures include sending personalized private-channel invitations to VIP customers, accompanied by airfare and hotel benefits, to promote sales of high-ticket items such as jewelry and watches. The company also plans government-coordinated promotions around the Sanya store anniversary in September, the Haikou International store anniversary in October, the Mid-Autumn Festival, and the National Day Golden Week, while rolling out unified Double 11 and Double 12 year-end campaigns across Hainan, Beijing, Shanghai, its overseas duty-free network, and online channels. Goldman Sachs maintains its forecast of 17% year-on-year growth in Hainan sales for FY26, implying 16% growth in 2H26, a slowdown from 23% in 1H26. The report emphasizes that further share-price upside still largely depends on the scale of consumption vouchers issued by the Hainan government during the peak season. An earnings inflection point has emerged at Haikou International Duty-Free City. The project's 1H26 revenue increased 20% year on year to Rmb3.7bn, and it recorded a net profit of Rmb11mn, a marked improvement from the Rmb424mn net loss in 1H25. The company continues to position it as a cultural-tourism destination integrating retail, dining, culture, and sports, and expects improving sales trends to continue supporting profitability. Pre-leasing for Sanya Haitang Bay Phase III, namely Taikoo Li Sanya in partnership with Swire Properties, is progressing smoothly, with multiple brands already committing to occupy space. The project has a total gross floor area of 266.3k square meters across three levels, encompassing luxury brands, experiential retail, and cultural spaces. It is scheduled to open in phases beginning later in 2026, primarily under a duty-paid operating model; a detailed tenant list is expected to be announced subsequently. Regarding the Hong Kong and Macau businesses, the transition has been relatively smooth since the company completed the acquisition of DFS's Hong Kong and Macau operations in March 2026, with most of the original teams responsible for procurement, marketing, customer relationship management, and operations retained. Supported by 13% and 9% year-on-year growth in inbound visitors to Hong Kong and Macau, respectively, in 1H26, the business contributed approximately Rmb746mn in revenue and Rmb11mn in net profit during the March-to-June consolidation period. Management expects to achieve cross-selling through cooperation with DFS on product assortment and domestic Chinese brands, as well as through China Tourism Group's membership base of more than 60mn. Overseas expansion will remain selective. The company has received invitations to bid for several airport lease contracts but will prioritize markets with substantial Chinese traveler traffic. Potential M&A will focus more on improving the supply chain and brand partnerships, and the company does not rule out deeper cooperation with LVMH, such as joint investments. Following the renewal of duty-free contracts at Beijing and Shanghai airports, adjustments to the supply chain, store layouts, and staffing have been largely completed, and the company expects the previously slowing sales growth to gradually normalize. Online, the company is uniformly renaming its Hainan WeChat mini-program and mobile application “CDF China Duty Free” and integrating them with “CDF Membership Shopping” and “CDF Sunrise” to unify pricing, services, and membership benefits. Registered members across the entire ecosystem have exceeded 60mn. The company also plans to add physical stores to provide after-sales support for online purchases and to pilot hybrid multi-format downtown stores and on-demand delivery in Guangzhou and Shenzhen to improve logistics efficiency and customer experience. Based on the latest operating conditions, Goldman Sachs adjusted its FY26-28 earnings forecasts by -3% to +1%. For revenue forecasts, FY26E was lowered from Rmb54,490.8mn to Rmb54,121.1mn, FY27E was raised from Rmb60,944.2mn to Rmb62,285.3mn, and FY28E was raised from Rmb67,046.8mn to Rmb69,614.7mn. EPS forecasts were adjusted from Rmb2.30, Rmb2.69, and Rmb3.10 to Rmb2.23, Rmb2.72, and Rmb3.14, respectively. Goldman Sachs forecasts FY26-28 EBITDA of Rmb7,493.7mn, Rmb8,911.9mn, and Rmb10,127.0mn, respectively, with net profit margin rising from 8.6% in FY26E to 9.4% in FY28E. On valuation, after the shares significantly underperformed by approximately 40% year to date, FY26E and FY27E P/E multiples stand at approximately 24x and 19x, with precise values of 23.8x and 19.5x in the forecast table, indicating lower valuation pressure than previously. However, Goldman Sachs also notes that the company still trades at a 20%-30% premium to its covered China travel and leisure peers, while pressures from weak consumption, traveler diversion overseas, online competition, and a potential narrowing of cost advantages following the implementation of island-wide duty-free policies in Hainan have not dissipated. The 12-month A-share target price was lowered from Rmb69 to Rmb67, of which the existing business contributes Rmb64.5 per share based on a 30x FY26E P/E valuation, while new downtown duty-free stores contribute Rmb2.6 per share. The H-share target price was raised from HK$61 to HK$62, applying a 20% H/A discount consistent with the historical average. Given the coexistence of operational improvements and structural pressures, Goldman Sachs maintains its Neutral ratings on both the A-shares and H-shares.

Analysis framework

Goldman Sachs first combines management's conference-call commentary with company disclosures, comparing China Tourism Group Duty Free's Hainan revenue growth with the Hainan duty-free market and explaining changes in sales and gross margin through product categories, pricing, channel mix, and promotional arrangements. It then evaluates progress across the Haikou, Sanya, Hong Kong and Macau, airport, and online businesses before adjusting its FY26-28 revenue and EPS forecasts accordingly. For valuation, it applies an FY26E P/E multiple to the existing business, separately includes the value of new downtown duty-free stores, and derives the H-share target price using the historical H/A discount.

Methodology notes

• Valuation MethodP/E and PEG Valuation

  Target-price valuation based on FY26E P/E

  Goldman Sachs values China Tourism Group Duty Free's existing business at 30x FY26E P/E, corresponding to an A-share value of Rmb64.5 per share; this multiple is viewed as consistent with mid-cycle levels.

• Valuation MethodSOTP Valuation

  Separate valuation of the existing business and new downtown duty-free stores

  The A-share target price of approximately Rmb67 is derived by adding Rmb64.5 per share for the existing business and Rmb2.6 per share for new downtown duty-free stores, separately reflecting the value contributions of businesses at different stages of maturity.

• Valuation Method

  Historical H/A discount method

  Goldman Sachs applies a 20% historical average H/A discount to the A-share valuation to derive a 12-month H-share target price of HK$62.

• Industry Analysis FrameworkVolume-price decomposition

  Hainan duty-free sales tracking

  The report tracks Hainan demand through indicators such as duty-free sales, number of shoppers, conversion rate, and spending per customer, while using category-level price advantages and channel mix to explain changes in sales and gross margin.

• Quantitative/Factor/Portfolio TheoryMulti-factor model

  GS Factor Profile

  This framework uses forward sales, EBITDA, EPS, ROE, ROCE, CROCI, and various valuation multiples to calculate growth, financial-return, and valuation percentiles, which are then aggregated into composite indicators for comparison with the market and industry peers.

Asset mapping & comparison

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

• China Tourism Group Duty Free A-shares (601888.SS)

  The operating performance of the company's Hainan, airport, downtown duty-free, and Hong Kong and Macau businesses directly affects A-share earnings forecasts and valuation.

  Strengths

  Hainan revenue growth exceeds the market, 2Q26 gross margin has recovered, the Haikou project has turned profitable, and the company has more than 60mn registered members.

  Weaknesses

  The company faces pressures including weak consumer sentiment, traveler diversion overseas, online-channel competition, and a potential narrowing of its cost advantage.

  Comparison

  The Rmb67 target price comprises Rmb64.5 per share for the existing business and Rmb2.6 per share for new downtown duty-free stores; the company still trades at a 20%-30% valuation premium to covered China travel and leisure peers.

  Risks

  Intensifying e-commerce price competition, weakening consumer demand for foreign luxury brands, and lower domestic retail prices or cross-border e-commerce tax rates.

• China Tourism Group Duty Free H-shares (1880.HK)

  The H-shares reflect the same company fundamentals as the A-shares and are also affected by the integration of the Hong Kong and Macau businesses, cross-border traveler flows, and the H/A discount.

  Strengths

  The Hong Kong and Macau businesses achieved positive profit after consolidation and can leverage DFS product resources and a membership base of more than 60mn for cross-selling.

  Weaknesses

  Earnings remain affected by Chinese consumer demand, traveler diversion overseas, and channel price competition.

  Comparison

  The HK$62 H-share target price is based on the A-share valuation with a 20% historical average H/A discount.

  Risks

  Lower-than-expected synergies from the Hong Kong and Macau businesses, weaker demand for foreign luxury goods, and a narrowing retail price differential.

Key data

• 1H26 Hainan RevenueRmb18.6bnUp 23% year on year, exceeding the Hainan duty-free market's 19% growth.
• 2Q26 Gross Margin34.3%Up 1.9 percentage points year on year and 0.7 percentage points quarter on quarter.
• FY26E Hainan Sales Growth+17% YoYImplies 16% growth in 2H26E, compared with 23% growth in 1H26.
• Haikou International Duty-Free City 1H26 PerformanceRevenue Rmb3.7bn; net profit Rmb11mnRevenue increased 20% year on year; 1H25 recorded a net loss of Rmb424mn.
• Taikoo Li Sanya Project Scale266.3k square metersThree levels in total, with phased opening planned to begin later in 2026.
• Consolidated Hong Kong and Macau Business PerformanceRevenue approximately Rmb746mn; net profit Rmb11mnCovers March to June 2026; inbound visitors to Hong Kong and Macau increased 13% and 9% year on year, respectively, in 1H26.
• Registered Membership BaseMore than 60mnTo support cross-selling in the Hong Kong and Macau businesses and integration of online and offline membership systems.
• FY26E Revenue ForecastRmb54,121.1mnPrevious forecast was Rmb54,490.8mn.
• FY27E Revenue ForecastRmb62,285.3mnPrevious forecast was Rmb60,944.2mn.
• FY28E Revenue ForecastRmb69,614.7mnPrevious forecast was Rmb67,046.8mn.
• FY26-28E EPS ForecastsRmb2.23, Rmb2.72, Rmb3.14Previous forecasts were Rmb2.30, Rmb2.69, and Rmb3.10, respectively.
• FY26-28E EBITDA ForecastsRmb7,493.7mn, Rmb8,911.9mn, Rmb10,127.0mnReflects a year-by-year increase in earnings scale over the forecast period.
• FY26E/FY27E P/E23.8x/19.5xThe report body presents rounded figures of approximately 24x/19x.
• A-Share Target PriceRmb67.00Previous target price was Rmb69; current price is Rmb53.08, implying 26.2% upside.
• H-Share Target PriceHK$62.00Previous target price was HK$61; current price is HK$49.26, implying 25.9% upside.

Impact & implications

The report believes that improving Hainan sales and gross margin, the Haikou project's return to profitability, the smooth consolidation of the Hong Kong and Macau businesses, and progress on new projects provide a foundation for subsequent earnings recovery. Airport-store adjustments and membership-system integration may also enhance channel synergies. However, 2H26 Hainan growth is expected to be slower than in 1H26, peak-season performance is sensitive to the scale of government consumption vouchers, and structural competition and consumption pressures prevent Goldman Sachs from adopting a more positive rating.

Risks

• Price competition from other e-commerce platforms may intensify further.
• Chinese consumers' spending on foreign luxury brands may weaken.
• Lower domestic duty-paid retail prices or reduced cross-border e-commerce tax rates could compress the duty-free channel's price advantage.
• Weak consumer sentiment and traveler diversion overseas may continue to weigh on the company's earnings trajectory.
• The company's existing cost advantage may weaken following the implementation of island-wide duty-free policies in Hainan.
• Consumption stimulus policies and consumption vouchers represent upside risks, although Goldman Sachs believes the relevant support may be directed more toward lower-income groups.
• Potential consumption-tax reform could increase duty-paid retail costs and widen the price gap with duty-free channels, representing an upside risk.

What to watch

• Monitor the scale of consumption vouchers issued by the Hainan government during the peak season from October 2026 to March 2027.
• Track whether Hainan sales can achieve Goldman Sachs' forecast of 16% year-on-year growth in 2H26.
• Monitor whether improving sales at Haikou International Duty-Free City can continue translating into higher profits.
• Watch for Taikoo Li Sanya's detailed tenant list and progress on its phased opening beginning later in 2026.
• Track synergies between the Hong Kong and Macau businesses and DFS in product assortment, domestic Chinese brands, and membership cross-selling.
• Observe whether sales growth at the Beijing and Shanghai airport stores can normalize following completion of the adjustments.
• Monitor the integration of pricing, services, and membership benefits across “CDF China Duty Free,” “CDF Membership Shopping,” and “CDF Sunrise.”
• Track the company's overseas airport bids, supply-chain acquisitions, and potential joint investments with LVMH.