China Securities Co., Ltd.: Which sectors are worth paying attention to right now?

China Securities Co., Ltd. released a research report stating that the Ministry of Finance, General Administration of Customs, and State Administration of Taxation have clarified the "zero tariff" policy for imported goods consumed by residents on Hainan Island's free trade port, as well as the estimated total cross-regional population flow of 9.5 billion people during this year's Spring Festival travel season, reaching a historical high. The company predicts that the trend of the duty-free sector returning to a high-quality and stable range, as well as the overall value enhancement and empowerment capabilities of the catering and hotel sectors in the industry chain, will accelerate. In 2026, the hotel and business activity cycle is expected to stabilize and improve, focusing on the realization of the business cycle. The tourism and leisure vacation sector, as well as tourism, continues to be an important driving force for domestic demand development, with policies expected to continue to support development in 2026. Additionally, the cross-border e-commerce sector is expected to benefit from the overall quality and brand effects of Chinese manufacturing, while the market share in overseas markets is also rapidly increasing. Optional consumption sector: It is recommended to pay attention to the following: The medical beauty and cosmetics sector has the logic of repair and increase in market share of domestic brands, with leading products and research and development continuously improving, recommending focus on operational efficiency and flexibility and the trend of R&D innovation of leading companies; It is recommended to pay attention to the long-term development space of leading companies in segmented sectors, as the performance of gold prices is expected to benefit from geopolitical competition and expectations of US interest rate cuts, and the improvement in the external trade environment, expecting that gold demand will have strong persistence and stability; Focus on the overall policy favorability and differential effects of the retail sector, paying attention to the sensitivity and relevance of local retail and consumption boost policies. China Securities Co., Ltd.'s main points are as follows: On February 5, the Ministry of Finance, General Administration of Customs, and State Administration of Taxation issued a notice clarifying the "zero tariff" policy for imported goods consumed by residents on Hainan Island's free trade port, which will be implemented from the date of publication. Island residents include Chinese citizens holding Hainan provincial ID cards, Hainan provincial residence permits, or Hainan provincial social security cards, as well as foreigners who work and live in Hainan, holding residence permits. The duty-free limit is 10,000 yuan per person per year, with no limit on the number of purchases. Duty-free goods focus on the daily necessities of island residents, mainly including some food and beverages, daily necessities, household goods, and maternal and child products. The Spring Festival of 2026 will begin on February 2. The total cross-regional population flow during this year's Spring Festival travel season is expected to reach 9.5 billion people, reaching a historical high. Self-driving travel will continue to be the main mode of transportation during this year's Spring Festival, accounting for about 80%. It is expected that the passenger volume of rail and civil aviation will reach 540 million and 95 million respectively during the Spring Festival, with the overall scale and peak value expected to exceed the historical peak during the same period. (1) Duty-free sector: Hainan has announced the first batch of island residents with duty-free qualifications, totaling 15, including 6 duty-free operators, 3 foreign-funded, 3 state-owned enterprises, and 3 private enterprises. Currently approved 202 items are mainly concentrated in food, daily necessities, toys, etc., which are significantly different from the duty-free categories on outlying islands; Apple's first entry into China's port of entry for duty-free shops at Zhuhai Duty-Free under Gongbei Port; As of January 29, since the implementation of the new duty-free policy on outlying islands, the shopping amount has exceeded 10 billion yuan, with 1.326 million shopping trips and a year-on-year increase of 25.32% and 1.84% respectively. It is expected that the increase in per capita spending will still have a strong driving effect; The five departments jointly issued 41 new duty-free shops at ports, and after the establishment of the inbound duty-free shop at the Hengqin port, residents and tourists entering from Macao are allowed to purchase duty-free goods in the shop within a certain quantity (within 15,000 yuan) yuan), which is expected to further promote inbound consumption and improve supply quality and channels. During the first month of port closure in Hainan Free Trade Port, duty-free sales on outlying islands reached 4.86 billion yuan, a year-on-year increase of 46.8%, with 745,000 shopping trips, a year-on-year increase of 30.2%, and 3.494 million shopping items, a year-on-year increase of 14.6%, performing well during the first peak season after the port closure; In the first month of closure, Sanya's duty-free sales reached 3.36 billion yuan, an increase of 47.1% year-on-year; National enhancement of tax supervision and possible subsequent consumption tax displacement are expected to continue to strengthen the tax advantages and differentiated competitive capabilities of duty-free channels. It is expected that the subsequent duty-free channels and the return of leading companies' gross profit margins to the high-quality and stable range, the gradual manifestation of the price advantages of core categories such as gold, 3C, and high-end fragrances, and the overall value and closing shop value of the benefiting channels will gradually be reflected; The good start of the year once again confirms that Hainan, as a high-quality channel after port closure, still has great development potential in the future; The Ministry of Commerce stated that it will support Hong Kong's integration into and service to the overall national development, complement the advantages with Hainan, develop synergies, and better play a role in the country's high-level opening to the outside world. 1The current port closure policy is more targeted towards imports and exports and manufacturing, namely implementing more favorable "zero tariff" policies for goods. Currently, the proportion of "zero tariff" goods for "first-line" imports will increase from 21% to 74%, and goods circulating between beneficiaries can be imported without paying import taxes, and those with a value-added processing of 30% or more can be exported to the mainland duty-free. This "duty-free" policy is less related to actual consumption and is not related to outlying island duty-free. 2The current categories of duty-free products for island residents are expected to have certain differences from the outlying island duty-free, and the current research suggests that multiple taxes will be combined into a sales tax (similar to the consumption tax model in Japan and Singapore). Therefore, there will also be a price difference between the core categories of goods. While duty-free remains a factor in reducing some taxes for island residents, considering the need to prevent smuggling and other illegal activities, there will likely be corresponding regulatory measures. The demands of tourists and local residents are likely to gradually differentiate, reflecting different policies. 3According to the current plan of the Hainan provincial government, the target after port closure is to accelerate the construction of an international tourism consumption center. On one hand, it aims to create influential new cultural and tourism consumption scenes. It will build a number of international cultural and tourism IP and projects, as well as promote the renewal and upgrade of existing scenic spots to provide tourists with a richer and more diverse tourism experience. On the other hand, it aims to create a reassuring, relaxing, joyful, and comfortable tourism consumption environment. The total social retail sales in Hainan in 2024 were 240.6 billion yuan, while the sales of operating entities in Hainan offshore duty-free were 47.03 billion yuan (309.4 billion yuan for offshore duty-free), with the offshore duty-free sector playing a significant role in Hainan's economy. Therefore, the recent policy introduced by Hainan Province for island residents to make purchases and collect immediately also highlights the encouragement attitude towards this. With the arrival of the growth of inbound tourism, the realization of the commercial value of core hub is paramount. Recently, the performance of inbound traffic in many core hub areas in China has exceeded expectations. Due to the rapid growth of Chinese tourists' outbound consumption, the National Development and Reform Commission proposed the concept of "consumption returning," and various policies supporting the duty-free industry have successively been introduced. Referring to the development paths of Japan and South Korea, the company believes that Chinese consumers have surpassed the stage of overseas consumption, and more and more Chinese brands can now tell a good story about going overseas; China is about to enter a stage of attracting foreign tourists and creating an inbound tourism economy. Focus should be given to the progress of the new duty-free agreement at Shanghai International Airport within the year. It is expected that the agreement game will further enhance the core hub's traffic aggregation effect and the release of the supply side capabilities. The performance recovery of airport duty-free sales is significantly weaker than inbound and outbound passenger flows. The company believes that this is mainly due to the fact that the original airport duty-free shops mainly catered to the needs of Chinese domestic travelers for international brand perfumes and luxury goods. However, with the intense price competition faced by brands on channels like Douyin and Tmall, the long-term disruption to the price system in the domestic perfume market, and the weakened price advantages of duty-free goods have significantly diminished. Yet for inbound foreign tourists, the relative advantages of domestic e-commerce cannot be utilized, and the current policy encourages the introduction of domestic brands and new consumer product categories, which will help adjust the sales structure of China's hub and city center duty-free shops to focus predominantly on foreign tourists, thereby creating new growth opportunities. Brands like Shiseido and Amorepacific are tapping into global market spaces through the channels of Japan and South Korea's duty-free outlets. With China and world-leading luxury and perfume sales, alongside the performance of luxury brands, from the performance of key global travel retail and mid-to-high-end perfume companies, it is noted that apart from Japan's high base, other regions in Asia have witnessed good recovery and growth. Considering the progress of the restoration in the previous quarter, it expects that the recovery in Hainan is better than that of Korea's duty-free sector. Currently, Korea is benefiting from the reduction in Chinese tourists visiting Japan, and sales are picking up. As Hainan and major luxury perfume products around the world have reached the bottom of inventory cycles, it is expected that profit margins will benefit from the trend of the appreciation of the Chinese Yuan. (2) Hotel sector: The REITs projects for hotel properties are gradually being promoted, enriching the types of asset properties for commercial real estate REITs. According to STR, the occupancy rate index for hotels in mainland China in 2025 experienced a year-on-year decrease of -3%, ADR decreased by -1%, and RevPAR decreased by -3%. The hotel sector's performance in the first market after New Year's Day still needs attention. Near the Spring Festival, it is expected to benefit from the boost in tourism demand. In November, the overall hotel industry experienced a slight improvement in marginal RevPAR, with some fluctuations in December. It is expected to benefit from the stimulation of business activities and exhibitions in the fourth quarter, while the demand at the end of the year is still under observation, and the supply side is gradually stabilizing, with a decreasing growth rate; the performance of leading companies in RevPAR is relatively good, and the trend of the overall hotel industry chain value elevation and empowerment capability enhancement is accelerating. The hotel and business activity cycle in 2026 is expected to stabilize and improve, with attention paid to the realization of the business cycle. According to STR Global, the overall RevPAR in October increased by 2.2%, with an occupancy rate decrease of -1.3% and an ADR increase of 3.6%. As of the end of October, the year-to-date national hotel market's RevPAR compared to the same period in 2019 has decreased to less than -4%. Cities such as Sanya, Tianjin, Qingdao, and Shanghai have performed well. The supply side is expected to maintain a relatively fast year-on-year growth in 2025. According to Ctrip's data, the supply side grew by 11.8% in the first half of 2025, and it is expected to slightly slow down in the third quarter of 2025, with a further marginal slowdown in the fourth quarter. This may be mainly due to the expectation of the stagnating development of existing properties from the previous years seeking stable cash flow returns, state-owned properties seeking disposal and value-added strategies, and the entry of a large number of small-scale hotels and homestays in the market. However, the supply side has shown a significant improvement. In the current overall consumer environment, and the current overall hotel price competition is expected to rise, indicating that the industry is slowly recovering. Business demand is still recovering weakly this year, but with relatively stable year-on-year resilience. There is a strong resilience in tourism demand, and if business demand is successfully restored, it will provide strong support for the stabilization and recovery of the overall RevPAR of the hotel market, considering the high RevPAR base levels and stability in 2024. The stable year-on-year recovery in RevPAR in 2025 will be a significant signal for the market in judging the investment opportunities in the chain hotel sector. Judging from the financial reports of leading hotel groups in the first half of 2025, efforts are being made to enhance supply chain synergy and empowerment, improve digitalization, strengthen the development of proprietary membership channels, streamline and improve the brand matrix, adjust organizational structure and regional management models, all of which have become the focus of hotel groups during the year. Under the current business environment, the validation of mid-to-high-end UE of leading hotel groups has become a key point in the industrial side, highlighting asset operations and refined management logic. Looking at the industry from a tiered perspective, the RevPAR performance of economy-class hotels is generally higher than that of high-end hotels. However, after the performance of the respective hotel categories declined in the period post-summer, there has been a trend of narrowing performance gaps. The trend of optimizing supply by leading hotels and strengthening product matrices is becoming more apparent, and platform and supply chain capabilities are expected to gradually see value realization. In 2025, the development of New hotels among HK&S HOTELS group has generally remained stable since 2024, with continued focus on core brand cultivation and the development of potential brands at all levels. Attention is also on improving the scope and speed of hotel layout. (3) Catering sector: Focus on recent IPO filings and early listing of catering companies, mostly focusing on leisure dining and cost-effective dining trends. From the current development trends in the industry, the absolute price advantage brought by leading companies in the segmented catering sector due to leading supply chain and organizational structure is becoming a core barrier. Recent easing of price competition in the dining industry suggests that the bargaining power of leading companies will be further emphasized; In December, CPI remained stable with a slight increase month-on-month, and the subsidy war on food delivery platforms may continue. Leading restaurants showed relatively stable performance in November, with some differences observed, indicating that the industry's supply side is currently facing intense competition. The leading bubble tea companies maintain a stable growth rate, and the platform is expected to continue to provide subsidies or targeted subsidies in the first half of 2026, with the leading companies expected to show high-quality same-store validation early next year. Social retail performance is better than the overall market. The dining industry has clearly entered an optimization period over the past two years. Taking the tea beverage industry as an example, the overall volume of orders in the platform increased rapidly due to subsidies and other factors, exceeding 200 million daily orders. However, while the main dozens of tea beverage brands maintained a relatively stable number of openings year-on-year, the new openings have been primarily captured by the top 3-4 companies, increasing the proportion of new openings significantly. According to data from YiView Business, the top three brands accounted for about one-third of all new openings in the past two years, which increased to 55% - 60% in Q3 this year. Secondly, in terms of profitability, different brands and businesses in the catering industry varied significantly in their profitability before and after subsidies. For example, for one of the top bubble tea brands, GUMING, pre and post-subsidy, there was no significant change in the actual receipts from storefront and delivery services, meaning that the profitability remained relatively stable across different channels for franchisees. While the structural lowering of actual receipts was significantly offset by a substantial increase in orders and even further increasing overall profits. However, some mid-sized and lower-tier brands facing changes in the subsidy ratio experienced difficulties in generating profits from food delivery orders, but they had to adapt to cope with the growing demand. After September, the perception of different brands regarding the strength of subsidies can be felt differently. It is expected that if the subsidy intensity significantly declines next year after the subsidy, there might be a shift to targeted subsidies by platforms, and leading brands with standout brand effects, management, and organizational capabilities, as well as stable products and supply chains, are likely to continue to benefit from the platform's win-win strategy. From the supply side perspective, according to data from HungryLeaks, as of the end of August 2025, there are more than 7.6 million restaurant stores nationwide, a year-on-year decrease of -1.9%, with 1.66 million registered catering enterprises in the same period, a year-on-year decrease of -11.4%. Looking at different categories, the growth in the number of stores is mainly in freshly brewed beverages and Chinese-style meals, with almost all other categories showing year-on-year declines. Notably, categories like hot pot and Asian cuisine have seen significant declines. The trend overall aligns with expectations of the catering industry entering a period of supply-side optimization from mid-2023. In 2023, the industry experienced a surge in new entries and net increase, but this markedly narrowed in 2024, while there was a notable decline in 2025. Furthermore, the subsequent importance of refined management in the catering industry and the gradual increase in the importance of core competitive barriers are becoming apparent, with leading brands capturing a greater share of the market, showcasing advantages in outmaneuvering the cycle. In 2026 and the following years, leading catering companies will continue to focus on optimizing the supply chain, improving operational efficiency, exploring multiple brand development curves, and other aspects of their long-term development trends. It is advised to choose brands with a significant edge in supply chain and organizational efficiency and with pronounced brand effects and innovative advantages. These brands are expected to weather industry cycles more effectively. (4) Scenic and leisure vacation sector: The State Council released the "Work Plan for Accelerating the Cultivation of Service Consumption Growth Points," which is expected to continue to benefit the service industry and travel consumption; this year's "longest" Spring Festival is expected to see a significant growth in overall ticketing for transportation during the festive season. Data from Fliggy shows that, as of now, there has been a growth of over 30% in the booking of travel services during this festive period, with the peak expected on the third day of the holiday, where bookings have increased by over 40% compared to last year; According to the Ministry of Culture and Tourism, during the 3-day New Year holiday in 2026, there were 142 million domestic trips, a year-on-year increase of 5.2% compared to a comparable 202