Unforeseen circumstances can happen at any time, just like a leaky roof that coincides with a night of heavy rain.On October 15th, China Duty Free Group (601888.SH) issued an obituary, announcing the passing of its Chairman and Legal Representative, Li Gang, on October 14th due to illness.In early February of this year, the former Chairman of China Duty Free Group, Peng Hui, retired, and Li Gang was elected as the new Chairman. Unfortunately, he passed away suddenly less than 9 months into his tenure. China Duty Free Group stated that Li Gang did not hold any shares in the company, and the normal business operations will not be affected.Since Li Gang took office, the stock price of China Duty Free Group has entered a downward trend, continuously falling. As of the close of October 13th, the year-to-date decline has reached 54.7%, and the market value is now only about 200 billion yuan.Upon closer examination, the devaluation of China Duty Free Group is not only influenced by the market style switch, but also reflects the market's concerns about its fundamentals under pressure.Currently, China Duty Free Group faces both immediate concerns and long-term considerations.The immediate concern lies in the fact that the increase in operating costs far exceeds the recovery rate of consumer purchasing power. The long-term concern is that another heavyweight duty-free retailer will directly compete with China Duty Free Group in the Hainan duty-free market.Let's start with the immediate concern: On October 8th, according to China Duty Free Group's interim performance report for the first three quarters of this year, it achieved revenue of 50.84 billion yuan, a year-on-year increase of 29.1%; and a net profit of 5.2 billion yuan, a year-on-year increase of 12.3%.In the third quarter of this year, China Duty Free Group finally ended the situation of increasing revenue but not increasing profit since the fourth quarter of 2021. It is expected to achieve revenue of 14.979 billion yuan, a year-on-year increase of 27.9%; and a net profit of 1.333 billion yuan, a year-on-year increase of 93.2%. However, compared with the same period last year, it still declined by 55%.The recovery of quarterly profits is not as good as in 2021, indicating the current weak recovery of consumption. During this year's National Day holiday, the duty-free sales on Hainan Island continued the strong momentum seen during the May Day holiday, but the consumption was not as prosperous. The Hainan Customs supervised a total of 1.33 billion yuan in duty-free sales on the outlying islands, with a daily average sales of 170 million yuan, even lower than the 180 million yuan during the May Day holiday. The average transaction value also decreased by 11% compared to the same period last year.While consumer purchasing power is insufficient, the costs incurred by China Duty Free Group are increasing.First and foremost is the rent it needs to pay to the airports. According to the &#34;Supplementary Agreement&#34; signed between China Duty Free Group and Shanghai Airport, as international passenger traffic increases, the rent paid by China Duty Free Group also rises. Analyst Li Dan from Zheshang Securities pointed out in a research report that China Duty Free Group's net profit margin declined by 1.5 percentage points in the third quarter, mainly due to the increase in offline rental costs at airports.In August of this year, there were rumors that the airport would lower the percentage of deductions from China Duty Free Group. At that time, TradeWind01 received confirmation of the above rumors from multiple sources close to China Duty Free Group. The source stated that the specific adjustment of the deduction percentage had not been confirmed.Recently, TradeWind01 learned from an analyst in the social services industry in the East China region that the late Chairman of China Duty Free Group, Li Gang, personally handled the rent reduction issue with the airports. It is currently unclear whether this matter will change with Li Gang's passing.In addition to rental pressure, the appreciation of the US dollar has caused the purchasing costs of China Duty Free Group (CDFG) in the first half of this year to increase at a faster rate than revenue. Currently, there is no indication that the Federal Reserve will cut interest rates in the short term, making it difficult to alleviate the cost pressure for CDFG in the near future.Looking ahead, CDFG is concerned about the long-term impact of DFS, the world's fifth-largest travel retail company, which is expected to open its first world-class seven-star luxury retail and entertainment destination, DFS Yalong Bay Resort, in Sanya, Hainan by 2026. With the support of LVMH, DFS will have access to more high-end brand resources, which will inevitably create competition for CDFG.According to analysts in the East China region, although CDFG's leading position in Hainan's duty-free market is solid, it will face the risk of declining market share, which currently accounts for nearly 80% of the Hainan market, due to intensified competition in the duty-free market.

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We have both long-term considerations and immediate concerns.

After the sudden passing of the chairman, the worries and concerns of China Duty Free Group (CDFG)