CHINA. China Tourism Group Duty Free Corp (China Tourism Group/CTG) this week posted its second-quarter results, which revealed the impact of lockdowns in key Hainan tourist-source markets Beijing and Shanghai. The results pre-dated the recent COVID outbreak on Hainan island which will hit Q3 figures.
Total revenue reached CNY10,868 million (US$1,575 million), down -38% year-on-year and -35% quarter-on-quarter. The key sales driver as it has been throughout the pandemic was China Duty Free Group’s (CDFG) performance on Hainan island. There, revenue fell -50% year-on-year to CNY6,567 million (US$957.6 million) for Q2.
Group-wide first-half revenue decreased by -22% year-on-year to CNY27,651 million (US$4,006 million). Hainan revenues dropped -29% to CNY19,352 million (US$2,804 million). The key Haitang Bay location performed better, with sales falling -17% year-on-year in H1 to CNY15,354 million (US$2,224 million).
Commenting on the performance in a note, Goldman Sachs Equity Research noted the impact of sharp year-on-year traffic declines to Haikou of -76% and -64% respectively in April and May. It said that the Haitang Bay business had held up better due to the retailer’s ability to better serve high-end customers due to lower shopper density during the lockdown periods.
Due to the group’s 100% ownership there, CDFG’s prime Haitang Bay location had generated a better net margin (16.0%) than operations in Haikou (10.3%) in Q2. “By controlling 100% of the more profitable Sanya stores (vs. 51% of the less profitable ones in Haikou through ownership in Hainan Duty Free Group), CTGDF was able to deliver better-than-expected 2Q22 earnings,” Goldman Sachs said.
The firm maintained its Buy rating on China Tourism Group’s A and H-shares. “Despite a near-term setback related to the viral outbreak in Hainan since early August, we expect business normalisation is likely in mid or late-September, based on past overseas experiences which suggest it typically takes around 1-1.5 months to control the COVID19 situation”
The note echoed The Moodie Davitt Report’s analysis this week which portray a sharp drop in new locally transmitted COVID cases. Sanya retailers are hopeful that their stores will reopen by mid-September, optimum timing with the peak Golden Week holiday period kicking off in the last week of the month.
New China market launch
In July The Moodie Davitt Report launched 穆迪达维特中国旅游零售报告 – The Moodie Davitt China Travel Retail Report, a digital magazine dedicated to our industry’s hottest market.
The new digital title is published in Mandarin and English four times a year across multiple platforms.
Click on the image to read the bi-lingual title. The next edition will be published in October and will feature a comprehensive follow-up on CTG Duty-Free’s Global Offering and Hong Kong secondary listing. Please email Kristyn@MoodieDavittReport.com for a free first year subscription.
