$China Tourism Group Duty Free Corporation Limited(601888)$ $CHINA TOURISM GROUP DUTY FREE CORP LTD.(CTGDF)$ $CTG DUTY-FREE(01880)$
Softening sales momentum....
CTGDF announced 1H23 preliminary results, expecting a 30% year-on-year (YoY) revenue growth and 2% YoY earnings decline. As such, it implies a 39% YoY revenue growth and around 14% YoY earnings growth in 2Q23. The revenue recovery momentum was slower than expected. On the positive front, gross profit margin (GPM) further recovered to 30% in 2Q23, rose 3.7 percentage points (ppt) quarter-on-quarter (QoQ). Its effort in lowering price discounts reflects the emphasis on balancing profitability and scale, which should drive consistent GPM recovery in 2H23. Despite concerns about soft spending power and potential consumption diversion to overseas when outbound travel accelerates in the near-term, the stock is trading at around 21x forward price-to-earnings (P/E) which is close to trough level. We believe sequential improvement from 3Q23 onwards should support sentiment and share price performance as peak season approaches and the recovery of airport duty-free accelerates. The next catalyst to watch out for would be the roll-out of favourable downtown duty-free policies. We believe the current valuation offers more attractive risk-reward in the medium-term. Our adjusted fair value estimate to CNY173, implying 30x forward P/E multiple, which is at historical average level.
This looks like an interesting stock to watch out for given China's travel rebound. Further, with the Visa free program, this could provide another Catalyst for this stock. You can consider investing before the rally starts.
DYODD
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