Hainan offshore duty-free under pressure, "duty-free king" net profit plummets 77% in the fourth quarter

"Tax-free Moutai" performance continues to decline.

On January 16, China Duty Free Group (601888.SH) released its performance report for the fiscal year 2024.

The total operating revenue for the entire year of 2024 is approximately 56.492 billion yuan, a year-on-year decrease of 16.36%; the net profit attributable to shareholders is 4.263 billion yuan, a year-on-year decrease of 36.5%.

Based on this, the revenue for the fourth quarter is 13.472 billion yuan, a year-on-year decline of 19.3%; the net profit is only 344 million yuan, a year-on-year decline of 77.2%, with the decline significantly widening compared to the first three quarters of 2024.

In its performance report, the company responded that due to the slowdown in consumer demand and the impact of the industry cycle, the company's operating performance continues to be under pressure.

The most direct manifestation is the decline in its pillar business—Hainan offshore duty-free.

According to statistics from Haikou Customs, in 2024, Haikou Customs supervised a total of 30.94 billion yuan in offshore duty-free shopping in Hainan, a year-on-year decline of nearly 30%, with the number of shoppers down 15.9% year-on-year.

As the largest operator of Hainan offshore duty-free business, China Duty Free Group has six offshore duty-free stores in Hainan Province. The 2023 annual report shows that the revenue from the Hainan region accounts for nearly 60% of the company's total revenue.

However, with the continuous relaxation of visa-free policies and the gradual recovery of inbound and outbound passenger flow, China Duty Free Group's airport duty-free business is still growing.

In 2024, the number of inbound and outbound passengers at Beijing port reached 18.27 million, a year-on-year increase of 90%; the cumulative number of inbound and outbound passengers at Shanghai port exceeded 36 million, a year-on-year increase of 85%.

During the same period, the revenue from China Duty Free Group's duty-free stores at Beijing airport increased by over 115% year-on-year, while Shanghai airport saw an increase of nearly 32% year-on-year.

The inbound and outbound passenger flow at Beijing and Shanghai has respectively recovered to 68.5% and 78.8% of the levels in 2019.

Zhou Mingqi, founder of Jingjian Think Tank, believes that China Duty Free Group's airport duty-free business is expected to continue rebounding from a low base, but sales may not return to 2019 levels.

For China Duty Free Group, the consumption capacity of its main customer base, the middle class, is declining. Compared to e-commerce and overseas purchasing channels, the advantages of the outbound duty-free business in terms of price and purchasing convenience are diminishing.

Analysts believe that with the gradual clarification of policies for city duty-free stores, city duty-free is expected to become the next growth point for China Duty Free Group.

According to a research report from Huaxi Securities, considering only the shopping demand of Chinese citizens going abroad, the future domestic city store market (excluding offshore) may reach 48 billion yuan. The rent for city duty-free stores is expected to be significantly lower than that of airport duty-free, leaving room for price competitiveness and profit margins.

On the day of the performance report release, China Duty Free Group announced that its wholly-owned subsidiary won the operating rights for city duty-free stores in six cities: Shenzhen, Guangzhou, Xi'an, Fuzhou, Chengdu, and Tianjin. Including the original seven stores, the company's city duty-free business now covers 13 cities.

In Zhou Mingqi's view, whether in city duty-free business or overseas expansion, China Duty Free Group faces competition from various retail formats both domestically and internationally, and "Duty Free needs to come up with stronger pricing strategies."