Orient: Hainan outlying island duty-free shopping continues to warm up, optimistic about the duty-free sales performance in the second and third quarters.

Orient released a research report stating that the Hainan government is increasing incentives for high-quality large-scale events, enhancing the direction of "attracting visitors to the island, promoting consumption", and is expected to further boost off-season duty-free consumption. As the duty-free sales in Hainan showed stable growth in March and the upcoming off-season from April to September has a low base effect, coupled with the increased efforts of the Hainan provincial government to attract tourists and favorable overseas conditions for consumption return, the bank is optimistic about the duty-free sales performance in the second and third quarters. Relevant stocks: China Tourism Group Duty Free Corporation (601888.SH, Buy), Wangfujing Group (600859.SH, not rated), Zhuhai Zhumian Group (600185.SH, not rated) The main points of Orient are as follows: Hainan's off-island duty-free continues to rebound, with stable growth in March off-season According to data from Haikou Customs, in the first quarter of 2026, the amount of duty-free shopping in Hainan's off-islands was 14.21 billion yuan, with 1.816 million shopping visitors and 10.977 million shopping items, a year-on-year increase of +25.7% / +18% / +12%. Considering that in January and February, the amount of duty-free shopping in Hainan's off-islands was 105.9 billion yuan, with 1.279 million duty-free shopping visitors and 8.012 million duty-free shopping items, a year-on-year growth of 25.9%, 16.6%, and 9.9% respectively, it can be inferred that the amount of duty-free shopping in Hainan's off-islands in March was 36.2 billion yuan, a year-on-year increase of 25.1%, which is basically stable. At the same time, as the growth rate of amount exceeds the growth rates of visitors and items, it means that the consumption of higher-priced items continues to improve, which is more favorable for China Tourism Group Duty Free Corporation, the leader in Hainan duty-free commerce. In addition, as April-September enters the off-season for tourism and duty-free sales in Hainan, the bank believes that the second and third quarters of this year will benefit from the lower base effect of weak consumption power compared to the same period last year. Hainan provincial government intensifies consumption stimulation, expected to continue to drive cultural tourism duty-free consumption In December 2025, the Hainan provincial government introduced the "Hainan Province's Further Measures to Promote Tourism Consumption", and in 2026, the fiscal budget will tilt towards performances and events, introducing 77 key event performances and activities, and maintaining a high level of consumer voucher distribution. By increasing incentives for high-quality large-scale events and strengthening the direction of "attracting visitors to the island, promoting consumption", it is expected to further boost off-season duty-free consumption. Decline in flow of tourists to Japan in Q1, contributing to the return of consumption to domestic duty-free channels According to data from the Japan National Tourism Organization, the number of visitors from mainland China to Japan in March decreased by 55.9% year-on-year, marking the fourth consecutive month of year-on-year decline. In the first quarter of this year, the number of visitors from mainland China to Japan decreased by 54.6% year-on-year. Various industries in Japan such as retail, accommodation, and catering are under pressure, with preliminary statistics from the Japan Ministry of Land, Infrastructure, Transport and Tourism showing a significant year-on-year decrease of 276.3 billion Japanese yen (1 US dollar is about 159 Japanese yen) in spending by visitors from mainland China in the first quarter. The bank believes that Chinese tourists in Japan mainly focus on categories such as cosmetics, luxury goods, and high-end alcoholic beverages, which align closely with the core categories of domestic duty-free shops. The return of consumption will directly increase the flow and average spending of domestic duty-free shops, especially the duty-free shops in Hainan's off-islands, which will become the main recipients of consumption return due to policy advantages and a rich brand matrix. Risk warning Macroeconomic and household income recovery lower than expected, or suppression of optional consumption and travel demand; intensified competition and rising costs erode corporate profitability; increased market valuation fluctuations, with sector-specific adjustment risks.