What's new

In late October 2025, the Ministry of Finance and five other government departments issued a notice on enhancing policy support for duty-free shops to boost consumption. Meanwhile, according to China Tendering and Bidding Public Service Platform, Shanghai International Airport has recently opened tenders for inbound and outbound duty-free (DFS) store projects at Pudong and Hongqiao international airports.

Comments

We think the YoY performance of the DFS business is gradually improving. We believe Shanghai International Airport’s duty-free business may show better YoY momentum, as reflected in the Rmb314mn of duty-free rental income recognized in 3Q25 under duty-free contracts, up 18% YoY— turning positive for the first time since 2Q24 and growing slightly faster than international passenger traffic.

We expect the Ministry of Finance’s new duty-free policy and changes in online channels to drive additional growth. We believe the new regulations will enable DFS stores at ports of entry to broaden their product offerings, including allowing duty-free operators to: 1) Purchase domestic products for sale at outbound duty-free stores and downtown DFS stores at ports, classify these products as exports, and obtain value-added tax and consumption-tax refunds (or exemptions); and 2) introduce new product categories such as mobile phones, micro drones, sporting goods, health foods, over-the-counter drugs, and pet foods. In addition, we expect Sunrise’s online channels to continue to face YoY sales pressure, which may partly benefit offline sales at ports of entry.

Watch the new round of tendering. Based on bidding information released on the China Tendering and Bidding Public Service Platform, we believe several bidding terms may enhance airports’ bargaining power, including: 1) Allowing domestic companies with DFS qualifications, as well as reputable foreign-invested enterprises with sufficient capability in DFS operations, to participate; 2) splitting the Pudong and Hongqiao airport terminals into three separate bids, with certain bids not allowed to be awarded to the same bidder; and 3) introducing a defined operating assessment period.

Financials and valuation

We maintain our 2025 and 2026 earnings forecasts at Rmb2.26bn and Rmb2.73bn. The stock is trading at 36.0x 2025e and 29.7x 2026e P/E, and we maintain our TP at Rmb34.5 (38x 2025e and 31x 2026e P/E), offering 6% upside. Maintain OUTPERFORM.

Risks

Rental terms under DFS contracts and/or DFS business growth fall short; tourist traffic growth also disappoints.