Domestic consumption rebounds, China International Travel Service Duty Free (CITS) saw a 24% year-on-year increase in revenue last year, planning to distribute dividends of 3.4 billion yuan | Financial Report Insights

On the evening of March 27, after the Hong Kong stock market closed, China International Travel Service Corporation Limited ("China Duty Free") announced its 2023 annual performance. According to the financial report, the company's total revenue for the full year last year was 67.54 billion yuan, a year-on-year increase of 24.08%, falling short of the market's expected 68.53 billion yuan, slightly lower than 67.67 billion yuan in 2021. The company achieved a net profit of 6.713 billion yuan for the full year, a year-on-year increase of 33.46%, which is 30% lower than the 9.654 billion yuan in 2021. The company also announced that it plans to distribute a cash dividend of 16.5 yuan per 10 shares to all shareholders, totaling 3.4146 billion yuan, accounting for 50.85% of the net profit in 2023. As of today's closing of the Hong Kong stock market, China Duty Free fell by 4.09%. Domestic Consumption Recovery Boosts China Duty Free's Revenue by Nearly 1/4 Benefiting from the recovery of the tourism market and domestic consumption environment, China Duty Free achieved significant growth in revenue and profit in 2023. The full-year revenue increased by 24.08% year-on-year, and the net profit increased by 33.46% year-on-year. In terms of products, the company's duty-free product sales reached 44.231 billion yuan, an increase of about 70% year-on-year, with a high gross profit margin of 39.49%. However, taxable product sales decreased by 20% to 22.344 billion yuan. The business in Hainan Province remains the company's main source of revenue, with total revenue in Hainan Province reaching 39.65 billion yuan for the full year last year, an increase of over 14% year-on-year. China Duty Free emphasized in the financial report that "deepening cultivation in Hainan" remains a strategic focus for the company. The growth in revenue and profit last year was mainly due to the rapid recovery of the Chinese tourism market and overall consumption, especially in the Hainan market with 6 duty-free shops, which saw an explosive growth in tourist arrivals last year: In 2023, the total number of tourists received in Hainan Province was 90.062 million, a year-on-year increase of 49.9%; total tourism revenue reached 181.309 billion yuan, a year-on-year increase of 71.9%. According to the "2024 Hainan Provincial Government Work Report" data, the sales of 12 off-island duty-free shops in 2023 reached 58.09 billion yuan, an increase of 19.3% year-on-year According to the data from Haikou Customs, in 2023, Haikou Customs supervised a total of 43.76 billion yuan in tax-free shopping on Hainan's outlying islands, a year-on-year increase of 25.4%; with 6.756 million shopping trips, a year-on-year increase of 59.9%; and 51.3 million shopping items, a year-on-year increase of 3.8%. The per capita shopping amount was 6,478 yuan. Moreover, the New Year's consumption boom in Hainan is still ongoing. Data from Haikou Customs shows that during the eight-day Lunar New Year holiday, shoppers in Hainan spent a record 2.49 billion yuan on duty-free goods. From February 10th to 17th, the number of shoppers exceeded 297,000, with an average expenditure of 8,358 yuan on duty-free goods per person, a year-on-year increase of 60%. Since China doubled the duty-free shopping limit at 12 duty-free stores in Hainan to 100,000 yuan in 2020, the total duty-free consumption has also doubled from around 2 billion yuan in 2019 to over 6.1 billion yuan in 2023. With Hainan expected to achieve full duty-free status by 2025, this growth is projected to continue. China Duty Free Group stated that in 2023, Hainan added 177 well-known domestic and international brands, focusing on launching globally limited, globally premiered, and China Duty Free exclusive products. They implemented the "S Store" project to benchmark the operation and service standards of top brands, with sales at 14 pilot "S Stores" increasing by 65% year-on-year. It is estimated that the inbound and outbound markets may still need a recovery period of 4-5 quarters On the cost side, due to the increase in leasing expenses caused by the recovery of passenger flow at key airports during the reporting period, as well as the low base effect of rent reductions in the same period last year, China Duty Free's sales expenses surged by 133.65% last year, reaching 9.42 billion yuan. At the same time, with a significant increase in exchange gains and interest income, the company's financial expenses reached 869 million yuan; while management expenses remained basically flat compared to last year, at 2.208 billion yuan. Looking ahead to 2024, China Duty Free cited the "UNWTO World Tourism Barometer" which indicates that in 2024, the global international tourism industry is expected to fully recover to pre-2020 levels, with an initial estimate of a 2% growth compared to 2019. With visa facilitation and increased aviation capacity, accelerated growth in outbound and inbound tourism in China is expected in 2024. According to the China Tourism Academy, it is estimated that in 2024, domestic tourism outbound trips and domestic tourism revenue will exceed 6 billion trips and 6 trillion yuan, respectively, basically recovering to or exceeding 2019 levels. Inbound and outbound tourism trips and international tourism revenue are expected to exceed 264 million trips and 107 billion US dollars, reaching 88% and 81.5% of 2019 levels, respectively However, China Duty Free Group emphasizes that compared to the rapidly recovering domestic tourism market transitioning into prosperity, the inbound and outbound market may still need 4-5 quarters to return to the peak of the previous cycle. The policy effects of the recovery of the inbound and outbound tourism market, as well as the comprehensive repair of the supply chain, will require more patience and effort.