UOB Kay Hian
Date of Report: August 27, 2025
China Tourism Group Duty Free: Earnings Slump, Margins Under Pressure, Fair Valuation Triggers Hold Recommendation
Overview: China’s Duty-Free Retail Giant Faces Headwinds in Recovery
China Tourism Group Duty Free (CTGDF, 601888 CH), a leading global duty-free operator, has reported a challenging Q2 2025 and H1 2025, with significant declines across key financial metrics. UOB Kay Hian has downgraded its rating to HOLD, citing fair valuation despite a slight upward revision in the target price on improved inventory digestion.
CTGDF’s core business spans duty-free travel retail, covering tobacco, wine, perfumes, cosmetics, accessories, fashion, electronics, and the development of commercial complexes anchored by duty-free operations. The group is majority-owned by China Tourism Group (50.3%).
Share Performance and Valuation Snapshot
- Current Share Price: RMB 71.41
- Revised Target Price: RMB 75.30 (+6% from previous TP)
- Market Capitalization: RMB 146.4 billion (~US\$20.5 billion)
- 52-week High/Low: RMB 84.92 / RMB 53.52
- 2025F PE: 33.7x
- 2026F PE: 27.5x
The stock has seen a robust rebound in recent months, but with the current multiples, UOB Kay Hian believes the valuation is fair, warranting a HOLD stance.
Key Financial Results: Q2 and H1 2025
CTGDF’s Q2 2025 performance was notably weak, with net profit down 32% YoY and 66% QoQ. The company’s H1 2025 figures underscore a tough operating environment.
| Metric |
Q2 2025 |
Q1 2025 |
Q2 2024 |
YoY Change |
QoQ Change |
| Total Revenue (Rmbm) |
11,405 |
16,746 |
12,458 |
-8.5% |
-31.9% |
| Gross Profit (Rmbm) |
3,701 |
5,523 |
4,219 |
-12.3% |
-33.0% |
| Gross Margin (%) |
32.5 |
33.0 |
33.9 |
-1.4 ppt |
-0.5 ppt |
| EBIT (Rmbm) |
930 |
2,463 |
1,274 |
-27.0% |
-62.2% |
| EBIT Margin (%) |
8.2 |
14.7 |
10.2 |
-2.0 ppt |
-6.5 ppt |
| Net Profit (Rmbm) |
662 |
1,938 |
976 |
-32.2% |
-65.8% |
| Net Margin (%) |
5.8 |
11.6 |
7.8 |
-2.0 ppt |
-5.8 ppt |
H1 2025 Segmental Performance Breakdown
CTGDF operates several major subsidiaries and segments. The following table details their H1 2025 performance:
| Segment / Company |
Operating Revenue (Rmbm) |
YoY Change |
Operating Profit (Rmbm) |
YoY Change |
Operating Profit Margin (%) |
Attributed Net Profit (Rmbm) |
YoY Change |
Net Profit Margin (%) |
| Group Duty-Free Sales |
20,343 |
-6.1% |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
| Group Duty-Paid Sales |
7,189 |
-21.5% |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
| China Duty-Free Group (CDFG) |
21,238 |
-5.8% |
1,260 |
-29.2% |
5.9 |
1,032 |
-32.1% |
4.9 |
| CDFG Sanya Downtown Duty-Free |
10,343 |
-13.7% |
713 |
+10.9% |
6.9 |
605 |
+12.7% |
5.9 |
| Hainan Duty Free Co., Ltd. |
1,826 |
-8.8% |
67 |
-44.1% |
3.7 |
57 |
+13.0% |
3.1 |
| Sunrise Duty-Free (Shanghai) |
6,870 |
-19.2% |
495 |
-39.1% |
7.2 |
366 |
+18.1% |
5.3 |
Business and Margin Dynamics: Duty-Free vs Duty-Paid
- Revenue from Hainan region fell 10% YoY in H1 2025, with Sanya’s duty-free mall down 14% and Haikou’s up just 0.4%.
- Sunrise Duty-Free Shanghai saw a 19% YoY revenue decline.
- Over 60 new brands were introduced in Hainan to meet evolving consumer demand.
- Offline sales reached RMB 19.7 billion, while online sales hit RMB 7.8 billion in H1 2025.
- Gross margin for duty-free business: 39.0% (down 0.5 ppt YoY).
- Gross margin for duty-paid business: 13.1% (down 4.2 ppt YoY), due to intensified online competition and promotions.
Earnings Revision and Risks
- 2025/26 earnings forecasts lowered by 9% and 10% respectively.
- 2025/26 revenue projections cut by 12% and 11% amid weak duty-free consumption recovery.
- Gross margin estimates raised slightly for 2025/26 (+0.6 ppt and +0.2 ppt).
- Operating expense estimates up by 1.1 ppt and 0.7 ppt for 2025/26.
Valuation and Recommendation
- Target price revised upward to RMB 75.30 (+6%) on improved inventory digestion and raised working capital projections.
- Target price implies 35.5x 2025F PE and 29.0x 2026F PE.
- Current trading multiples: 33.7x 2025F PE and 27.5x 2026F PE.
- Valuation deemed fair; recommendation downgraded to HOLD.
Key Financials: 2023-2027 Forecasts
| Metric |
2023 |
2024 |
2025F |
2026F |
2027F |
| Net Turnover (Rmbm) |
67,540 |
56,474 |
56,025 |
63,015 |
69,632 |
| EBITDA (Rmbm) |
9,618 |
7,449 |
8,280 |
9,794 |
11,033 |
| Net Profit (Rmbm) |
6,714 |
4,267 |
4,390 |
5,375 |
6,118 |
| EPS (Fen) |
324.5 |
206.3 |
212.2 |
259.8 |
295.7 |
| PE (x) |
22.0 |
34.6 |
33.7 |
27.5 |
24.1 |
| Net Margin (%) |
9.9 |
7.6 |
7.8 |
8.5 |
8.8 |
| Dividend Yield (%) |
2.3 |
1.5 |
1.5 |
1.9 |
2.1 |
| ROE (%) |
13.1 |
7.8 |
7.8 |
9.1 |
9.8 |
Balance Sheet and Cash Flow Highlights
- Net cash position remains robust, with net debt/cash to equity at -53.3% (2024) and projected to reach -65.7% by 2027.
- Dividend payouts are steady, with yields expected to gradually improve to 2.1% by 2027.
- EBITDA margins forecast to rise from 13.2% in 2024 to 15.8% by 2027.
- Net margins expected to recover from 7.6% (2024) to 8.8% (2027).
- Turnover growth is projected to rebound, from a decline in 2024 (-16.4%) to +12.5% in 2026 and +10.5% in 2027.
Conclusion: Strategic Inventory Moves, But Recovery Remains Elusive
China Tourism Group Duty Free is proactively managing inventory and introducing new brands to capture demand, but faces continued challenges from subdued duty-free consumption and competitive pressures, especially online. Margins remain under stress, and although working capital improvements have led to a higher target price, the company’s current valuation leaves limited upside. UOB Kay Hian’s HOLD rating reflects a cautious outlook, balanced by CTGDF’s strong balance sheet and leading position in China’s travel retail sector.
About UOB Kay Hian’s Coverage
The report originates from UOB Kay Hian, a leading brokerage with extensive research expertise in Asian consumer and retail sectors. For further details or specific queries, readers may contact Stella Guo, Shirley Wang, or Ejann Hiew, the analysts responsible for this coverage.
Disclosure and Analyst Certification
The analysts certify that the views expressed are their own, independent, and not influenced by compensation linked to sales or corporate finance activities. UOB Kay Hian adheres strictly to regulatory standards across all jurisdictions in its research distribution.
Key Takeaways for Investors
- HOLD rating due to fair valuation and earnings risks.
- Inventory management and brand initiatives positive, but consumption recovery remains slow.
- Solid financial position and sector leadership offer downside protection.
