China Tourism Group Duty Free Corporation (01880) 24th Interim Report Performance Meeting: has organized a number of activities to cope with the upcoming peak sales season.

Recently, China Tourism Group Duty Free Corporation (01880) held its interim report performance meeting for 24 years. China Tourism Group Duty Free Corporation pointed out that in the face of pressure in the second quarter, the company strategically focused on seizing the sales peak season in the second half of the year (October to March of the following year). They organized a series of activities to boost popularity and attract customer traffic, such as the 10th anniversary celebration of Hainan Bay, charter sales, various promotional activities, and upgrades to quality customer service. At the same time, they enhanced the professional training and service awareness of sales personnel, used social media and live streaming to strengthen interaction with customers, especially personalized services for diamond card, gold card, and platinum card members, to prepare for the upcoming sales peak season. In anticipation of the closure of Hainan, the company has made comprehensive preparations in various aspects. Firstly, they have increased efforts in the construction of integrated complexes and service upgrades to create a more attractive tourist destination. Secondly, they have applied for non-tourist attractions qualifications to expand cultural and cultural experience projects. Thirdly, they have promoted the opening of new projects such as the Whiskey Museum to enrich the format combination. Additionally, the company will closely monitor policy changes, actively communicate with the government, ensure the continuation of the island's duty-free policy advantages, and adjust business strategies according to policy changes to ensure the healthy development of the island's duty-free market. Q&A Q: Can you briefly review the company's operating situation in the first half of the year and the main highlights of work? A: The company faced a challenging external market environment in the first half of the year but still carried out solid work. Overall, despite a year-on-year decline of 12.81% and 15.07% in revenue and net profit scale, respectively, through measures such as optimizing product structure, increasing the proportion of high-margin products, and improving promotion management mechanisms, the main business gross profit margin reached 32.94%, an increase of 2.6 percentage points year-on-year. Q: What specific practical work has the company done in optimizing product structure and promoting Chinese brands to go abroad? A: The company has introduced more than 160 Chinese brand home furnishings, nutrition and health care, maternity and baby brands, as well as signed a strategic cooperation agreement with the People's Government of Jinjiang City to expand upstream brands and downstream channel resources to help Chinese brands land in overseas markets. In addition, through large-scale marketing events, strengthening Wuxi Online Offline Communication Information Technology Co., Ltd. collaboration, and enhancing supply chain management, the company has improved customer experience and operational efficiency. Q: What specific development strategies has the company implemented in Hainan and what important progress has been made in brand introduction, store construction, and sales performance? A: The company actively practices and deepens its Hainan strategy, introducing approximately 50 new brands in the first half of the year and successfully opening key brands such as Prada and Gucci in the Hainan International Duty-Free City, enabling continuous improvement of brand layout. Meanwhile, the company has strengthened integrity management and service quality, opened three new SS stores to meet the diverse and personalized needs of consumers, and leveraged the advantages of Hainan's free trade port to open Paris Olympic Games licensed product stores, promoting comprehensive cooperation in Chinese sports, cultural tourism, and other areas. Q: How is the company's market share in the island duty-free market? What are the characteristics of inbound and outbound duty-free businesses? A: In the first half of the year, China International Maritime Duty Free Market share reached 83.9%, an increase of 1.8 percentage points compared to the same period last year. With the recovery of domestic tourism and the growth of inbound and outbound tourists, the company's domestic and overseas channels have made significant progress. Domestic channel revenue increased more than doubled year-on-year, and profitability continued to improve; the overseas channel actively promoted the Belt and Road national strategy, successfully opened and operated multiple international high-end duty-free stores, demonstrating the company's strong market expansion capabilities and supply chain management levels. Q: In the face of changes in consumer behavior, especially in the Hainan region and the composition of shopping crowds at airports and their consumption behaviors, what strategies will China International Duty Free take? A: In response to changes in the composition of shopping crowds in the Hainan region and airports, China International Duty Free has made corresponding adjustments to product structure and product introduction. For example, in response to an increasing proportion of elderly consumers, health products and sports products have been added to the leisure goods supply. At the same time, due to the increase in the proportion of independent travel, investments in luxury and sports leisure goods at key airports have been increased to better meet the needs of different consumer groups. Q: Currently, the indoor duty-free shops in Beijing and Shanghai are relatively small. Are there any plans to expand or relocate to other locations? Will there be a possibility of increasing the proportion of indoor duty-free shop equity in the future? How is the rent determined between the airport shops? A: Currently, we have noted that the indoor duty-free shops in Beijing and Shanghai are relatively small compared to Hainan, and in the context of the new policy of expanding categories, we are considering whether to increase the area and expand the experiential space. Specific decisions will be based on overall sales volume and product demand. Regarding equity, Xiamen Sunrise Group and China International hold 50% and 51%, respectively, and there may be adjustments in the future. Regarding rent, the current guideline is that the cost structure of export shops should not be higher than that of import shops, and specific details need further negotiation and resolution with local governments and port owners. Q: In airport duty-free shops, what is the proportion of outbound and return to country pick-up? A: In reality, the proportion of pick-up from outbound shops is higher because there is consumption and gift-giving demand when leaving the country, and many travelers choose to take goods when they leave. In comparison, the proportion of pick-up upon returning to the country is lower. Q: Will there be new shops opened in Beijing and Shanghai in the next step? If there are new stores, will there be coordinated and collaborative plans in management, procurement, and operations? A: We have completed the investment outputs according to the investment agreement and have carried out related work such as industrial and commercial changes. Currently, both stores are undergoing optimization and integration of personnel and resources, and have implemented collaborative management to strengthen cooperation in procurement and product organization arrangements.How is the airport's revenue and profit margin recovery situation?Combined with the overall improvement in airport business revenue and profitability, the introduction of new product categories such as electronic devices and Chinese trendy products has broken the previous reliance on high-margin goods. With the recovery and overall renovation process of the new airport accelerating, both sales and profits are growing at an accelerated pace. Question: Are incoming passengers currently subject to separate limits on outbound return journey allowances? From a policy interpretation perspective, the shopping limit for outbound return journey is not independently specified, but rather all travel segments of inbound passengers are included in the total inbound limit management. Question: What is the specific tax rate for corporate income tax at the merged level and in each region of China Duty Free Group in the first half of the year? The corporate income tax rate at the merged level in the first half of the year is approximately 19%. There are variations in different regions, with a tax rate of 25% for domestic airport shops and traditional stores, 16.5% for duty-free shops mainly in Hong Kong region, and 15% in Hainan region due to preferential policies. Question: What is the reason for the increase in the tax burden in the first half of the year? Will the future tax situation return to normal levels? The increase in the tax burden is mainly due to the recovery of airport traffic driving year-on-year growth in revenue and net profit of high-tax burden enterprises, especially prominent in the Shanghai region. With the optimization and recovery of revenue and net profit in Hainan region in the second half of the year, it is expected that the overall tax burden will return to the average level of previous years. Question: What are the expansion plans of China Duty Free Group in overseas markets? The overseas expansion plans mainly include opening stores in the cruise industry, opening new boutiques, introducing domestic sports brands, and actively laying out airport and indoor stores in Southeast Asia, with a focus on attracting more foreign consumers through duty-free policies. Question: What is the impact of the upcoming closure policy on the company's strategic planning? Hainan will hold a meeting in July to promote comprehensive closure, focusing on pressure testing and preparation work for the supervision of processing value-added goods in the free trade port, application of secondary ports, and construction of the international trade single window. Based on the closure policy, the company will continue to optimize the off-island duty-free policy, promote major projects in diversified formats, and ensure the market appeal and retail revenue growth of Hainan as a tourist island. Question: If there is a need to change the address or expand the area of indoor duty-free shops already established in cities like Beijing, Shanghai, and Shenzhen, do we need to reapply for approval process? Currently, for the relocation or expansion of existing indoor shops in Beijing, Shanghai, and other places, specific management measures have not been introduced by relevant departments, so specific operations need to wait for specific guidance from relevant departments. Question: In the face of the overall market pressure in Hainan, what is China Duty Free's response strategy? How do you assess the trend in Hainan for the second half of the year? Despite the overall market pressure in Hainan, China Duty Free has maintained a stable market share in the off-island duty-free market through diversified product positioning, multiple brands, and optimized shopping experience. To overcome the current challenges, China Duty Free will focus on channel resource integration, precise customer acquisition and diversion (including cooperation with the government to distribute consumer vouchers and promotional measures), enrich brand portfolio and service experience (such as launching the tenth anniversary event, loyalty discounts, and nighttime economy development), and seize opportunities in crisis to unleash greater potential. Question: Are there significant differences in product layout and sales strategies between indoor shops and airport shops? Indoor shops differ from airport shops in terms of space layout, customer trial experience, and product selection. Indoor shops provide more personalized experience time and opportunities, while airport shops focus on quick decision-making and supplementary purchases. Regarding concerns about certain brands, we believe that in the past few years, the impact was not directly caused by the pricing of duty-free channels, but rather the comprehensive influence of diversified choices and multi-channel development. In the future, China Duty Free will continue to maintain a balance of offline and online channels, meet the needs of different customers, and focus on repeat purchase conversion and attracting new customers to help brands achieve reasonable pricing and market regulation. Question: What are the updates in the development strategy and future outlook for online channels? In the past few years, online channels have made significant contributions to the company during the epidemic period. In the future, we will continue to strengthen online channel construction, especially focusing on the online interfaces and brand structure of shopping centers in Sanya, Haikou, and other places to maintain competitive advantages nationwide, continuously adjust the brand lineup of second phase stores, and advance business progress in Thailand and other places. Management is optimistic about the future strategic direction of online channels, aiming for balanced development, meeting the needs of different consumers, continually optimizing repeat purchase conversion rates, and exploring better business practices. Question: How did online business during the epidemic period affect consumer shopping experiences and brand selection, and what is its role in future development strategies? During the epidemic period, online business had a significant impact on consumer shopping experiences and brand selection, especially favorable services like duty-free booking and member purchases in Hainan. Data shows that there is a small overlap in consumer spending between offline and online channels, attracting many new customers. Therefore, we will continue to enhance the integration of online channels and consider it as an important channel for future business development. Question: How is the brand appeal of the China Duty Free project in Hainan, especially in the area of high-end luxury brands? Despite the current consumption pressure, the second phase of the China Duty Free project has successfully introduced a series of high-end well-known brands, including many globally ranked international brands. The inclusion of these brands not only enhances the overall brand image of Haitang Bay in Sanya but also provides customers with a more diverse and rich selection.In response to the recent significant pressure on the Hainan tourism market, what new measures has the company taken at the strategic level and in specific operational methods to ensure stable performance in the third and fourth quarters? Faced with pressure in the second quarter, the company focuses on seizing the sales peak season in the second half of the year (October to March of the following year) at a strategic level. The company has organized multiple activities to boost popularity and attract customer flow, such as the 10th anniversary celebration of Hainan Bay, charter flight promotions, various publicity activities, and upgrading of quality customer services. At the same time, the company is strengthening the professional training and service awareness of sales personnel, using social media and live streaming to enhance interaction with customers, particularly providing personalized services to Diamond, Gold, and Platinum card members in preparation for the upcoming sales peak season. Question: Regarding shareholder returns, will the company adopt a more aggressive cash dividend policy or launch an equity incentive plan in the future? The company currently has more than 50% cash returns and plans to continue to maintain high cash dividends. At the same time, the company is studying and discussing the possibility of implementing equity incentives to reward investors and enhance transparency and investor relations management. The ultimate goal is to safeguard shareholder interests through good operational and sales performance. Question: In the face of the upcoming closure of Hainan, what specific strategies and preparations has the company made at the operational level? In anticipation of the closure of Hainan, the company has made comprehensive preparations in several aspects. Firstly, it is intensifying the construction of integrated complexes and enhancing services to create a more attractive tourist destination. Secondly, it is applying for non-tourist scenic area qualifications to expand cultural and tourism experience projects. Thirdly, it is promoting the opening of new projects such as the Whisky Museum to enrich the mix of businesses. In addition, the company will closely monitor policy changes, actively communicate with the government to ensure the continuation of the duty-free policy on the island, and adjust business strategies according to policy changes to ensure the healthy development of the duty-free market on the island.