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According to the China Tendering and Bidding Public Service

Platform (text in Chinese), Shanghai International Airport recently announced bid winners for its inbound and outbound duty-free shopping (DFS) projects at Pudong and Hongqiao international airports.

Comments Based on candidates that topped the list of bid winners, we think it is likely that Pudong airport will introduce foreign DFS operators, which may help improve the competitive environment and broaden the category of duty-free

products. According to the announcement of successful bidders, the candidate that topped the list of bid winners for Pudong airport terminal 1 is Dufry Group. China Tourism Group Duty Free topped the list of successful bidders for Pudong airport terminal 2 and at Hongqiao airport.

We expect the entry of foreign DFS operators to foster a more competitive operating environment at airports. In addition, based

on our research on overseas airports (text in Chinese), we

believe foreign DFS operators may help airports diversify their sales categories.

The rent structure is revised to comprise base rents and commissions. We suggest paying attention to the comprehensive commission rates of each category.

According to the announcement of successful bidders, rents are calculated based on “fixed monthly rents + Σ (monthly sales of each category × commission rate of each category). We believe this structure could motivate DFS operators to expand their sales value in order to dilute the proportion of fixed rental costs.

The fixed monthly rents for Pudong airport terminal 1, Pudong airport terminal 2, and Hongqiao airport are Rmb3,141/sqm,　　Rmb3,090/sqm, and Rmb2,827/sqm, with commission rates at 8-24% for Pudong airport and 8-22% for Hongqiao airport.

Based on current store area of the airports, we estimate that airports’ base rents may be relatively close to the level determined by the previous duty-free contract. We suggest monitoring the commission rates of each category. We think categories with lower gross margins and those that airports wish to add to their sales structure may have lower commission rates.

We suggest paying attention to Sunrise Duty Free’s future

business operations. Shanghai International Airport now holds a 12.5% stake in Sunrise Duty Free (Shanghai) and Sunrise Duty Free (China), which generated investment income of about Rmb68mn in 1H25. Given Sunrise Duty Free’s online business operations and the fact that the company was not included in the list of successful bidders, we suggest paying attention to the future development of the stake.

Financials and valuation

We keep our 2025 and 2026 earnings forecasts unchanged at Rmb2.26bn and Rmb2.73bn. The stock is trading at 35.3x 2025e and 29.1x 2026e P/E. We maintain our target price of Rmb34.5, implying 38x 2025e and 31x 2026e P/E, offering 8% upside. We maintain an OUTPERFORM rating.

Risks

Disappointing tourist traffic growth and/or DFS sales; larger- than-expected asset impairment loss.