Guotai Junan: The integration of Qinzhou and Macau is expected to benefit from Hengqin's duty-free policy.

Guotai Junan released a research report stating that starting from March 1, 2024, at 00:00, the Hengqin Guangdong-Macao Deep Cooperation Zone will officially implement separate management and closed-loop operations. Goods entering the cooperation zone from Macao via the "first line" can be exempt from tax or duty-free, and personal and reasonable quantity of items can be exempt from tax. Tax-free (duty-free) goods can circulate freely among eligible entities in the zone, and when entering other areas of mainland China from the cooperation zone via the "second line", they will be treated as imports and go through relevant customs procedures. The "first line" mainly consists of the Hengqin port, while the "second line" channels include the Hengqin Bridge, Hengqin Tunnel, Shenjing Channel, Hengqin Port, Guangzhou-Zhuhai Intercity Railway Extension Hengqin Station and Changlong Station, and Shizimen Tunnel. After the closure, the integrated development of Hengqin and Macao will bring great opportunities to the market in Hengqin. The Hengqin Guangdong-Macao Deep Cooperation Zone provides a new platform to promote moderate diversification of the Macao economy, a new space to facilitate the lives and job opportunities of Macao residents, a new demonstration of enriching the practice of "one country, two systems", and a new high ground to promote the construction of the Greater Bay Area of Guangdong, Hong Kong, and Macao. It is an important part of building a highly open integrated Macao. After the closure, goods passing through the customs on the "first line" in Hengqin will be exempt from tax. When passengers enter mainland China via the "second line" from the cooperation zone, as long as the value of the goods they carry is not more than 8000 RMB (including), customs will grant tax exemption. Benefiting from tax-free policies, more luxury brands are expected to settle in, and tourism retail will experience vigorous growth. Zhuhai Duty-Free has been deeply involved in the development of the Greater Bay Area, continuously expanding its business territory. As the operator with the only qualification in Zhuhai to operate duty-free shops at ports, Zhuhai Duty-Free has a strong competitive edge in the Greater Bay Area. Zhuhai Duty-Free's duty-free shops cover over 80% of the channels through which mainland tourists enter and leave Macao and 100% of the channels entering and leaving Hong Kong through Zhuhai, including ports such as Gongbei, Hengqin, the Hong Kong-Zhuhai-Macao Bridge Zhuhai Highway Port, and Jiuzhou Port. Zhuhai Duty-Free Group has long been established in Hengqin and is expected to benefit from the duty-free policies in Hengqin. On July 15, 2020, Zhuhai Duty-Free Group (Zhuhai Hengqin) Commercial Co., Ltd. was established; on May 30, 2022, Zhuhai Duty-Free Group signed a cooperation agreement with Hong Kong Li Xin Group to jointly build the Hengqin Innovation Square Tourism Retail Complex project, aiming to create a high-quality retail hub with a core positioning of "a high-quality retailer serving the convenience of Macao residents" and a core concept of "free port consumption + digital new retail". This project integrates tax-paid and duty-free businesses into a diverse ecosystem of high-quality consumption center. The project's first phase will involve opening a flagship store of Zhuhai Duty-Free in the core commercial area of Innovation Square. On December 6, 2023, Zhuhai Duty-Free's Hengqin port outbound duty-free shop officially opened. After the closure of Hengqin, tourism flows, commercial trades, etc., will all experience growth, and the Hengqin Innovation Square project is expected to benefit from policy dividends, strengthening its investment attraction and profitability. Risk warning: Trading approval risks, weak consumer demand, policy progress falling short of expectations.