China National Travel Service (601888): Q1 performance exceeded expectations and the tax-free territory expanded steadily

China National Travel Service (601888): Q1 performance exceeded expectations and the tax-free territory expanded steadily

China National Travel Service (601888): Q1 performance exceeded expectations and the tax-free territory expanded steadily

[Event]China National Travel Service released its 2018 annual report and achieved an operating income of 470.

07 million yuan, an increase of 66 in ten years.

21%; net profit attributable to mother 30.

9.5 billion, an annual increase of 22.

29%; net profit deducted from non-mother 31.

4.4 billion, an increase of 27.

82%; EPS is 1.

585 yuan / share.

Non-recurring gains and losses are mainly government subsidies.

Seen by quarter, Q1 / Q2 / Q3 / Q4 revenue growth rate was 53 respectively.

07% / 80.

29% / 59.

19% / 71.

22%, the annual growth rate of net profit attributable to mothers is 61.

48% / 30.

47% / 29.

34% / -37.


Affected by cost and expense, Q4 performance increased, including airport deduction rate increase, expansion, high up-front expenditure costs of tax-exempt business, the impact of exchange rate changes on commodity costs, membership points, provision of inventory, employee bonuses, etc.influences.
The company plans to distribute a cash dividend of 5 per 10 shares.

50 yuan (including tax), the dividend ratio is 34.


The company released the first quarter report for 2019, which reported a consolidated revenue of 136.

92 ppm, an increase of 54 in ten years.

72%; net profit attributable to mother 23.

0.6 million yuan, an increase of 98 in ten years.

80%; net profit after deduction is 15

89 ‰, an increase of 37 per year.


The non-recurring profit or loss is mainly the disposal of 100% equity of the China National Tourism Organization, and the transfer price is 18.

310,000 yuan, gains and losses of non-current assets disposal9.

0.5 billion.

In addition, Shanghai Daily Shanghai consolidated the consolidated financial statements in March 2018 and has been conducting tax-exempt business growth to promote revenue and net profit growth.

[Comment]1) Revenue: Haitang Bay has performed well, and the acquisition of Shanghai and Shanghai will result in tax-free incremental merchandise sales: 2018 revenue of 343.

35 ppm, a 119-year increase.


Among them, the tax-exempt business realized revenue of 332.

27 ppm, a 123-year increase.59% of revenue from taxable businesses11.

08 million yuan, an increase of 45 years.


Through the acquisition of Shanghai, Shanghai will consolidate and optimize the existing tax-free business of outlying islands and promote the increase in revenue from capital airport and Hong Kong airport tax-free business by 173.

23 ppm, and an increase in net profit attributable to mothers5.

04 billion.

① Sanya Haitang Bay Shopping Center: Fully realized 80% of revenue.

100,000 yuan, an increase of 31 in ten years.

66%, of which 77 are sales of duty-free goods.

71 ppm, an increase of 32 in ten years.


It received 5.97 million customers for the first time, an increase of 8 per year.

35%, 1.7 million shoppers, an increase of 29 per year.


The revenue performance is beautiful, mainly benefited from the continuous enrichment of market promotion activities, increasing awareness, and the increase of travel agency product lines, the continuous expansion of travel agency channels, resulting in increased passenger flow.

② Airport Duty Free: Shanghai Airport Duty Free Shop (including Pudong International Airport and Hongqiao Airport Duty Free Shop) achieved operating income of 104.

510,000 yuan (except consolidated statements in March 2018).

Shanghai’s highest duty-free shopping scale is about 1.3 million yuan, an annual increase of 40% +.

Capital Airport Duty Free Shops (including T2 and T3 Duty Free Shops) realized operating income.

89 ppm, an increase of 28 in ten years.


The increase in airport tax allowances mainly benefited from the continuous growth of airport passenger traffic, the continuous improvement of operation and management levels, the continuous enrichment of product structures, and the use of marketing drainage, promotion promotion, and employee incentives.

Tourism service industry: In the ten years of 2018, it achieved revenue of 122.

90 ppm, an increase of 0 in ten years.


In Q1 2019, revenue increased by 54 in ten years.

72% was mainly due to the growth of Shanghai-Shanghai Consolidated Consolidated Statements (consolidated in 南宁桑拿 March 2018) and the growth of consolidated tax-exempt business, and in February 2019, China National Tourism Administration no longer consolidated the scope.

2) Cost side: The optimization of scale effect channels improves the bargaining power, the growth of gross profit margin increased in 2018, and the increase in comprehensive gross profit margin increased by 11.

93 points to 41.

11%, first of all, the proportion of merchandise sales with a higher gross profit margin accounted for 55 in 2017.

99% increased to 73 in 2018.


In 2019Q1, the overall gross profit margin increased by 10 in ten years.

49 points to 49.

45%, mainly due to the adjustment of business structure. The China National Tourism Administration issued a table in February 2019, and the proportion of tax-free income of high gross margin business increased.

Commodity sales: Gross profit margin increased by more than 7 in 2018.

67 points to 52.

24%, of which, the gross profit margin of tax-exempt business increased by 7.

36 points to 53.
09%, taxable business increased by 4 per year.
84pct to 26.


The improvement in gross profit margin is definitely the integration and optimization of the duty-free commodity procurement channels after the acquisition of Sunshine China and Sunshine Shanghai by China Exempted Companies, and the procurement bargaining power has significantly improved.

Tourism service industry: Gross profit margin increased by 0 in ten years in 2018.

41 points to 10.


3) Expenses: The increase of the airport deduction rate led to a significant increase in the sales expense ratio in 2018, and the expense ratio increased by 12 during the period.

27pct to 28.

07%, of which sales / management / financial expense ratios doubled +12 respectively.

20pct / -0.

42pct / +0.

49 points to 24.

68% / 3.

41% /-0.


The increase in the company’s selling expense ratio was mainly due to the increase in selling expenses brought by Shanghai on the acquisition date and the increase in airport lease fees; the gradual decline in net financial income was mainly due to the increase in exchange losses.

2019Q1, the period expense rate will increase by 10 every year.

19 points to 29.

70%, of which the sales / management / financial expense ratio increased by +9.

89 points / -0.

54 points / +0.

84pct to 27.

84% / 2.

071% /-0.

twenty two%.

The increase in sales expense ratio was mainly due to the increase in airport lease expenses; financial expenses were mainly affected by exchange gains and losses.

4) Changes in profit and cash flow, etc. Net profit margin decreased by 2 in 2018.

36 points to 6.


Net flow of operating activities decreases by 9 per year.

77%, mainly due to the continuous growth of tax-exempt business, but the airport lease fee for tax-exempt business increased, and long-term stocks increased year by year, resulting in a slight decrease in net amount.

Net flow of investment activities fell sharply in the short term by 231.

10%, mainly due to the existence of time differences in wealth management expenditures in 2017 and China ‘s net flow on the acquisition date, Shanghai ‘s net approval on the acquisition date in 2018, construction projects, and land acquisition costs.

The net flow of financing activities increased over the same period of the previous year, mainly due to the reduction of debt repayments and the reduction of dividends paid by subsidiaries to minority shareholders.

Net interest margin increased by 3 quarterly in the first quarter of 2019.

73pct to 16.

84%, which was mainly due to the increase in non-recurring gains and losses9.

0.5 billion.

The net flow of operating activities increases by 70 each year.
89% was mainly due to the increase in sales of duty-free business and decline in inventory.
Intangible assets increase by 128 each year.

87%, mainly due to the increase in land purchase by China National Tourism Investment Corporation.

5) The tax-free industry has grown rapidly. China National Tourism’s tax-free business has developed rapidly. In 2018, China’s tax-free industry expenditure reached 39.5 billion, a growth rate of 27.


China National Travel’s duty-free business has made breakthrough progress: The company’s influence and competitiveness in the domestic and international duty-free markets have been greatly improved, and the advantages of the domestic duty-free market have been established. The tax-free commodity bargaining power, brand promotion, and profitability have been effectively enhanced.

As for airport duty-free shops, Beijing Capital Airport’s T2 and T3 terminal duty-free shops were newly opened, and Guangzhou Airport T2 exit shops were successfully opened; Hangzhou Airport, Kunming Airport and other exit shops completed the expansion and expansion project; Guangzhou Airport T1 exit shops, Hangzhou Airport exitRenewal of important airport contracts such as stores, Qingdao Airport Exit Store; Nanjing Airport, Guangzhou Airport T2 Entry Store opened; Hangzhou Airport, Chengdu Airport Entry Store expanded operating area.

Taxation business has been promoted step by step: the channel has been further developed and deepened, and it has successfully obtained the operation rights of 12 shops in Beijing Daxing International Airport’s international famous products and fragrance section. It has won the bid for the light luxury fashion brand zone on the south side of the domestic isolation zone of Hongqiao Airport T2 and the bid for Qingdao Airport.Comprehensive department store bidding section, completed the renewal of Guiyang, Nanjing, Shenyang and other projects to ensure the stable development of the company’s existing business.

Integration of tax-free commodity procurement system and optimization of product structure: After the merger and acquisition of Japan and Shanghai, the company quickly promoted the integration of the Japanese and overseas procurement systems internally, strengthened the negotiation with suppliers externally, and gradually increased the gross profit margin of procurement and gradually enriched it.Product lines of Beijing, Shanghai, Guangzhou, Hong Kong and other large duty-free channels.

Digital construction: Connect online and offline to enhance consumers’ tax-free shopping experience.

The company successfully completed the implementation of the automatic replenishment function of the Hong Kong Airport Duty Free Shop and launched the APP. On December 13, 2018, China Exempt Group created the official online pre-purchase platform “CDF Duty Free Pre-Order” and went online.
On November 20, 2018, the company and Alibaba Group entered into a strategic cooperation to work together to create a new online and offline tourism retail ecosystem.

6) Events in the duty-free industry and China International Travel Service ① In terms of duty-free operation rights a) Winning the bid for the duty-free operation right of Daxing Airport On April 10, 2019, China Exemption Group and Daxing Airport signed a tax-free project contract, and officially obtained the first bid for tobacco, alcohol and foodThe section and the second section are fragrant, and the 10-year tax-free operation right of the boutique section.

At the base year of Daxing Airport’s tobacco and alcohol, food standard segment, the operating expenses are guaranteed, and the deduction rates are 2 respectively.

3 ppm, 49%; the base year guarantee operating cost for fragrance and fine products is 4 years.

1.6 billion, the deduction rate is 46% (fragrance), 20% (fine).

With the smooth progress of the Daxing tax-free project and the commissioning of the new airport, we expect that the new tax-free income in 2021 and 2025 will reach 3.8 billion and 7.7 billion US dollars, respectively. The scale effect and strategic layout benefits will increase, and China National Travel Service will furtherStrengthen the leader level.

b) Win the bid for Shanghai Pudong International Airport and Hongqiao International Airport’s duty-free business right. On July 19, 2018, the subsidiary of China Free Group Group won the Shanghai Duty Free Turnover Project of Shanghai Hongqiao International Airport and Shanghai Pudong International Airport.

The initial contract period is from January 1, 2019 to December 31, 2025.

Hongqiao Airport and Pudong Airport have a guaranteed sales commission of 20 each.

71 ppm and 41 billion, with a combined sales commission ratio of 42.

5% and 42.


On December 9, 2018, the Shanghai Duty Free Shop of Shanghai Hongqiao International Airport officially opened.

c) Other tax-free business operating rights On January 12, 2018, the “Beijing Linkong International Duty Free City” project jointly created by China National Travel Service, Capital Airport Group, and Shunyi District Government started construction, with a total investment of 12 billion yuan, and the site is located next to BeijingTo the south of the Capital International Airport, it is only 600 meters from the T3 terminal, 444 acres above sea level, and has a floor area of 420,000 square meters. Construction is planned to be completed by 2020.

On March 6, 2019, Chen Guoqiang, the general manager of China Free Trade Group, stated that the Group will open the first in-city tourism retail store in Hong Kong. It will be located in the new outlet of Tung Chung City Outlets in Hong Kong, with an area of about 929 square meters.Chemical products.

On May 30, 2018, China Exemption Group and Thai King Power Group obtained the five-year duty-free business right of Macau International Airport in cooperation with the equity of Thailand King Power Group and successfully opened.

In July 2018, China Exempt Group obtained the duty-free business right of the Carnival-affiliated Gestad Cruises.

On July 12, 2018, the cdf tobacco and liquor duty-free shop officially opened.

On October 11, 2018, a long-term contract between Macau Gaming Company and China Exemption Group will establish China Exempt Group’s flagship Macau duty-free shop within the Macau-based “Shanghai Lisboa” integrated resort located in Cotai, Macau.

② In respect of duty-free business on outlying islands a) Hainan’s duty-free policy has been relaxed since the end of 2018, and Hainan’s duty-free policy has been significantly relaxed, including increasing duty-free shopping quotas, expanding the scope of duty-free goods, residents of the island unlimited shopping, and appropriate scope for passengers traveling by islandThe adjustment of outlying island tax exemption policies will help outlying island exempt operators to increase customer unit prices and conversion rates, and directly increase tax exempt performance.

b) China National Travel Service established Hainan Operation Headquarters. On August 30, 2018, China National Travel Service decided to transfer the equity of 83 wholly-owned or holding subsidiaries of the wholly-owned subsidiary China Exemption Group to the wholly-owned subsidiary established by China Exemption Group in Hainan.Hainan company is free. The related preparations include the establishment of ferry outlying island pick-up points, system commissioning and development, increased merchandise procurement, staff policy and service skills training.

The company actively grasps the development potential of Hainan. The advantages of the tax-free business in the Hainan market are continuously increasing and consolidated, and its influence is further enhanced.

c) In-depth cooperation with Haiwai Company Since August 2018, Sino-Free Group and Hai-Free Company have carried out in-depth cooperation on store environment, brand supply and consumer experience. China-Free Group will establish a procurement team for Meilan Airport Duty Free ShopAll new supply contracts and payments will be signed by China Exempt Group.

On April 25, 2019, China Free International signed a supply agreement with Haiwai Company with a validity period of three years, which is conducive to unifying Hainan’s outlying island tax-free procurement methods, enriching the outlying island’s duty-free business categories, expanding the company’s duty-free sales business and driving sales.
d) Competing for the land for construction of Haikou Duty Free Shop. The Hexin Island project steadily advanced on November 13, 2018. The company established the China National Tourism (Haikou) Investment Company.

In December 2018, China National Tourism Administration (Haikou) successfully won the bid for the construction land use rights of six countries on the west side of Binhai Avenue in Haikou City and Xingangjingliu Street with a total transaction value of 12.

1.3 billion, Haikou International Duty Free City project is progressing as planned.

The Sanya Haitang Bay Hexin Island project has completed the project’s special design and commercial civil structure according to the plan. The company has actively explored distinctive high-quality tax-managed brand operation platforms through the introduction of high-end and well-known brands. At present, investment promotion is steadily progressing.

③ Changes in equity a) Transfer of 100% equity of China National Travel Service, and no longer separate the scope of consolidation. On December 24, 2018, China National Travel Service increased its 100% equity of China National Travel Service to 18 by its wholly-owned subsidiary.
The high price of 310,000 yuan was transferred to the controlling shareholder China Tourism Group, focusing on the main business of tax exemption.
In February 2019, the China National Tourism Administration has completed registration procedures for industrial and commercial changes.

Significant premium transfers have increased China National Travel’s cash reserves.

As of September 30, 2018, the book value of the owner’s equity of China National Tourism Organization was evaluated based on the asset-based method9.

4 trillion, assessed value 18.

300 million.

Expected 2018 net profit of 0.

4.4 billion, corresponding to PE 41.

6 times.

Owner’s equity appreciation 8.

9 trillion, value-added carbon dioxide 94.


b) The Group exchanges shares with Hainan State-owned Assets Supervision and Administration Commission, and is expected to obtain 51% equity in Haiwai. On October 22, 2018, China Tourism Group, the controlling shareholder, took 2% of the company’s shares and 51% Hainan-owned exemption held by Hainan State-owned Assets Supervision and Administration CommissionThe company’s equity is transferred free of charge.

In order to avoid peer competition, the group is expected to inject 51% of Haihai’s shares into listed companies.

c) Acquisition of 51% equity in Shanghai on Shanghai, which is included in the tax exemption.
On February 26, 2018, China International Travel Service, a wholly-owned subsidiary of China National Tourism Administration, took RMB as the standard.

Acquired 51% of Shanghai Rishang’s equity of USD 5.0 billion (or USD equivalent).

The company’s tax-exempt business has made breakthrough progress and its scale has been greatly expanded.

7) Profit forecast: The company’s EPS for 2019-2021 is expected to be 2.



50 yuan, the corresponding PE is 33.



1 times.

We are optimistic about the expansion and operation efficiency of China National Travel Service, a duty-free leader, and give it a “Highly Recommended” rating.

Risk warning: policy advancement is lower than expected; M & A integration is lower than expected; exchange rate risk.