Cathay Securities and Haitong Securities: The decline in duty-free sales in the first five months has narrowed, focusing on the allocation value in the industry's rhythm recovery

According to the Zhitong Finance APP, Guotai Junan released a research report stating that from a historical data perspective, the decline in Hainan's offshore duty-free sales from January to May 2025 has narrowed, showing marginal improvement; the average transaction value has reversed the downward trend of the past two years; due to a temporary decline in conversion rates, the number of duty-free shopping visits still needs time to recover; the average price per item in February reached a recent high. The decline in offshore duty-free sales has significantly narrowed, and the average transaction value has rebounded strongly, with signs of data recovery gradually establishing. Coupled with the advancement of closure policies, the implementation of "buy now, refund later," and the background of increased tariffs on the U.S., the duty-free industry is ushering in a new window for allocation. Recommended stocks include: CTG DUTY-FREE (601888.SH, 01880) and Wangfujing (600859.SH).

Guotai Junan's main viewpoints are as follows:

Hainan Offshore Duty-Free: Sales scale decline narrows, average transaction value growth turns positive

From a historical data perspective, the decline in Hainan's offshore duty-free sales from January to May 2025 has narrowed, showing marginal improvement; the average transaction value has reversed the downward trend of the past two years; due to a temporary decline in conversion rates, the number of duty-free shopping visits still needs time to recover; the average price per item in February reached a recent high.

What is the impact of the closure of Hainan Free Trade Island?

There are concerns in the market that the "simplified tax system" may weaken the advantages of duty-free channels. Guotai Junan believes that during the actual implementation process, the requirement of "opening the first line and controlling the second line" will strictly control the flow of cross-border goods, significantly increasing regulatory difficulty. The smooth implementation of the simplified tax system relies on the maturity of supporting systems and regulatory capabilities, and there are still challenges in fully promoting it in the short term, with limited direct impact on the duty-free industry. Meanwhile, the implementation of closure policies will enhance Hainan's overall attractiveness in consumption, business operations, and logistics, strengthening its ability to attract business and tourist traffic. As the potential for passenger flow gradually releases, leading companies will expand their shopping visits, further strengthening their core competitiveness.

Departure Tax Refund: "Buy now, refund later" promoted nationwide, consumption penetration rate expected to increase

Starting from April 8, the departure tax refund "buy now, refund later" service measures will be promoted nationwide; the policy focuses on the consumption scenarios of foreign travelers in China, which is expected to improve the overall shopping conversion rate of foreigners in China; there are multiple differences between departure tax refund stores and duty-free shops; if the price difference is significant, it may lead to reverse purchasing by foreigners.

Tariff Increase: Duty-free channels have price and cost advantages, can fully expand market share

Duty-free channels have significant price advantages over taxed channels. With the same gross profit margin, the prices of duty-free end products for formula milk powder and cosmetics can be as low as 70-80% of taxed prices, red wine can be as low as 60%, and tobacco can be as low as 45%. For example, in cosmetics, demand for American products remains resilient, and compared to other customs clearance models, duty-free channels have cost advantages.

From a global perspective: South Korea's duty-free market is under policy suppression, and the substitution effect of Hainan is increasing. The purchasing power of local customers in South Korea is relatively low, and since September 2024, the duty-free sales to local customers in South Korea have continued to decline; affected by new customs policies in South Korea and Lotte Duty-Free's cessation of bulk purchasing transactions, the purchasing power of foreign customers in South Korea has also weakened accordingly, leading to declines in both duty-free sales and average transaction value.

Investment Recommendations

The decline in offshore duty-free sales has significantly narrowed, and the average transaction value has rebounded strongly, with signs of data recovery gradually establishing. Coupled with the advancement of closure policies, the implementation of "buy now, refund later," and the background of increased tariffs on the U.S., the duty-free industry is ushering in a new window for allocation Recommendation: CTG DUTY-FREE (601888.SH, 01880), Wangfujing (600859.SH). In addition, considering the improvement in H-share liquidity and the demand for southbound capital allocation, pay attention to the target: CTG DUTY-FREE (H-share, as of June 20, 2025, still at a discount relative to A-shares.)

Risk Warning

Exchange rate fluctuation risk, slower-than-expected economic recovery, intensified market competition risk