Key takeaway

Hainan's offshore duty-free sales have been on a gradual recovery path since September last year. With the development of the Hainan Free Trade Port bringing in higher-quality foot traffic and the continued liberalization of duty-free policies, CTG's core Hainan business holds substantial potential for earnings growth. At the beginning of 2026, the company's strategic partnership with LVMH and its expansion into DFS are expected to bolster its overseas business development. Alongside the inclusion of domestic brands in duty-free stores and the trend of RMB appreciation, the company is well-positioned to explore new growth breakthroughs and enhance its GPM, leading a new wave of opportunities in the duty-free industry.

Event

In 2026, the company recorded operating revenue of RMB27.655bn, down 1.76% YoY. In 2Q26, revenue was RMB10.749bn, a YoY decline of 5.75%. Net profit attributable to the parent company in 1H2026 was RMB3.106bn, up 19.49% YoY, and net profit excluding non-recurring items was RMB3.078bn, up 18.61% YoY. In 2Q alone, net profit attributable to the parent company was RMB758mn, up 14.54% YoY, while net profit excluding non-recurring items was RMB741mn, up 12.33% YoY.

Risks

1. Following the acquisition of DFS duty-free stores, there may be risks of operational instability. The pace of recovery in the Hong Kong and Macau depends on the stability of the surrounding regional environment and the purchasing power of mainland tourists.

2. The trend of RMB appreciation may reverse. Should the USD enter a strong cycle, the company's procurement costs would face upward pressure, which could in turn affect GPM and FX gains/losses.

3. Changes in market competition dynamics in Hainan offshore duty-free market: the company has many projects related to the development of Hainan free trade port which rapidly improves Hainan's business environment. If the market competition dynamics in Hainan change significantly, it will bring risks to the company's operations.

4. The company continues to invest heavily in asset-heavy construction projects in Hainan. The subsequent capitalization of these projects may exert short-term pressure on earnings.