Evaluation of Policy Dividend Release from Hainan Free Trade Port Customs Closure and Its Impact on Duty-Free Leader's Performance

Based on the latest collected data and market information, I will provide you with a systematic and comprehensive analysis.

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According to statistical data from Haikou Customs, from December 18, 2025 to January 17, 2026 (the first month of Hainan Free Trade Port’s customs closure operation), the offshore duty-free market delivered an impressive performance[1][2]:

Core Indicators	Data for the First Month of Customs Closure	Year-on-Year Growth Rate	Month-on-Month Change
Shopping Amount	RMB 4.86 Billion	+46.8%	Significantly Improved
Number of Shoppers	745,000 Person-Trips	+30.2%	Substantial Growth
Number of Items Purchased	3.494 Million Pieces	+14.6%	Steady Growth

Data for the first week after customs closure (December 18-24) was even more outstanding, with shopping amount reaching RMB 1.1 billion and number of shoppers hitting 165,000 person-trips, up 54.9% and 34.1% year-on-year respectively[3].

The boom in duty-free consumption stems from the concentrated release of multiple policy dividends[1][2]:

• The number of duty-free product categories increased from 45 to 47
• The scope of eligible beneficiaries was further expanded, allowing departing passengers to enjoy the offshore duty-free shopping policy
• The proportion of duty-free shopping by international tourists increased significantly

• Local residents who have one record of leaving the island in a calendar year can purchase 15 categories of “buy now, take now” products an unlimited number of times throughout the year
• Local consumption potential has been effectively unlocked

• The “first-line opening” management model, coupled with policies such as duty-free access to the mainland for products with over 30% processing value-added
• Has attracted cross-border industrial chain layout and enhanced Hainan’s appeal as an inbound business and leisure tourism destination

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According to industry data, signals of bottoming out emerged in high-end consumption-related industries in the third quarter of 2025[4]:

• LVMH’s performance in Asia excluding Japan and Richemont’s performance in Greater China turned positive year-on-year
• Estée Lauder’s sales in mainland China reached US$532 million in Q3 2025, up 9% year-on-year
• Macau’s gross gaming revenue in November increased 14.4% year-on-year to MOP 21.09 billion

The recovery of consumption demand among high-net-worth individuals has become the main driver of improvement in high-end consumption.

Several Fiscal Measures of Hainan Province to Further Promote Tourism Consumption, released on December 31, 2025, came into effect on January 1, 2026, with a validity period of three years, including 16 fiscal support measures to boost tourism consumption[4].

During the 2025 National Day holiday, the average daily number of inbound and outbound Chinese and foreign travelers reached 1.871 million, up 25.8% year-on-year. Data on foreign travelers’ entry and exit showed that the numbers in Q1/Q2/Q3 2025 reached 17.437 million/20.616 million/20.134 million person-trips respectively, up 33.4%/27.6%/22.3% year-on-year[4].

The number of offshore duty-free shoppers from January to November 2025 was 4.1819 million person-trips, a decrease of 19.86% compared to the same period in 2024, indicating that the passenger flow foundation still needs to be consolidated[3].

The rapid development of cross-border e-commerce has created diversion pressure on duty-free consumption, and enterprises need to enhance their long-term growth capabilities in multi-channel competition[4].

After the redistribution of the operating rights of Shanghai Airport’s duty-free shops, the competitive landscape has changed. Although China Duty Free still occupies a dominant position, it needs to face a more intense competitive environment[3].

• The Spring Festival holiday consumption peak is approaching
• In the initial stage of policy dividend release, shopping enthusiasm remains high
• Hainan’s tourism appeal continues to increase

• Based on predictions from Guojin Securities, offshore duty-free sales are expected to reach RMB 40.29 billion in 2026, up 30.3% year-on-year[4]
• However, as the base rises, the growth rate will gradually fall back to around 15%

• Per capita consumption continues to increase (reached RMB 6,449 from January to November 2025, up 20.10% year-on-year)[3]
• Downtown duty-free shops will become a new growth driver

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Indicator	2023	2024	First Three Quarters of 2025
Operating Revenue (RMB 100 million)	675.4	564.9	398.6
Year-on-Year Growth Rate	+24.08%	-16.38%	-7.3%
Net Profit Attributable to Shareholders (RMB 100 million)	67.14	42.6	30.5
Year-on-Year Growth Rate	+33.46%	-36.44%	-20.1%

The company’s performance pressure mainly stems from: weak consumer willingness, pressure on optional consumption, and cautious consumption decisions among middle-class and high-net-worth individuals[4].

• In September 2025, sales of Hainan offshore duty-free (China Duty Free holds an 85% market share) ended 19 consecutive months of year-on-year decline[4]
• The year-on-year growth rate reached 27% in November, with the overall trend improving at an accelerated pace
• The decline in the company’s operating revenue/net profit attributable to shareholders in Q3 2025 narrowed by 8.1/3.3 percentage points compared to Q2 2025

• The effect of Hainan’s customs closure is significant
• Gold tax reforms have amplified the price advantage of duty-free gold products
• Optimization of offshore duty-free rules has expanded the eligible population and product categories

Based on forecasts from Guojin Securities Research Institute[4]:

Indicator	2025E	2026E	2027E
Operating Revenue (RMB 100 million)	552.0	656.8	762.9
Year-on-Year Growth Rate	-2.3%	+19.0%	+16.2%
Net Profit Attributable to Shareholders (RMB 100 million)	39.7	52.4	66.1
Year-on-Year Growth Rate	-6.9%	+31.9%	+26.2%
Earnings Per Share (RMB)	1.92	2.53	3.19

1. Revenue from Hainan Region
   : Expected to reach RMB 28.64 billion/RMB 37.0 billion/RMB 42.53 billion in 2025/2026/2027 respectively, with a year-on-year growth of 29.1% in 2026
2. Offshore Duty-Free Sales
   : Expected to reach RMB 30.93 billion/RMB 40.29 billion/RMB 46.12 billion in 2025/2026/2027 respectively
3. Downtown Duty-Free Shops
   : Since December 2024, several downtown duty-free shops under China Duty Free have been renovated or newly opened, including those in Dalian, Qingdao, Xiamen, Guangzhou, Shenzhen, Chengdu, Xi’an, Tianjin, Fuzhou and other cities

Indicator	Value
Current Stock Price (January 12, 2026)	RMB 95.40
2026 Forecasted EPS	RMB 2.53
2026 Forecasted P/E Ratio	37.71x
Target Price	RMB 113.90
Upside Potential	+19.4%

(Based on the company’s historical valuation, a 45x P/E ratio is assigned for 2026)[4]

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The Chinese duty-free industry implements state-authorized operation, and there are only 10 duty-free licenses nationwide currently[5]:

• China Duty Free
  : Holds 4 licenses (full duty-free license portfolio), with a market share of approximately 80%
• Shenzhen Duty-Free Group, Zhuhai Duty-Free Group
  : Operate airport and port duty-free shops
• China Outbound Tourism Service Duty-Free, Zhongqiao Duty-Free
  : Operate airport, port and downtown duty-free shops
• Wangfujing
  : Offshore duty-free + downtown duty-free
• Hainan Duty-Free, Hainan Tourism Duty-Free, Hainan Port Control Duty-Free
  : Operate offshore duty-free in Hainan

• Wangfujing’s entry indicates signs of relaxation in duty-free license issuance, but it is difficult to shake China Duty Free’s leading position in the short term
• There are many enterprises (more than 10) applying for licenses, but no substantial progress has been made in the license application process[5]

• Shifting from license competition to operational capability competition
• Product category richness, supply chain capabilities, and member service systems have become core competitiveness
• The member value management system built on a 45 million-member scale is an important moat for China Duty Free[4]

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1. High growth in Hainan offshore duty-free is expected to continue in the short term
   : Driven by customs closure policy dividends, Spring Festival peak season, and policy support, offshore duty-free sales will maintain high growth
2. Medium-term growth rate will return to normalization
   : As the base rises and consumption returns to rationality, the growth rate will fall back to the range of 15%-20%
3. China Duty Free’s performance inflection point is approaching
   : Signs of improvement have emerged in both policy and performance aspects, and it is expected to achieve 31.9% profit growth in 2026
4. Leading position is stable
   : China Duty Free has a wide moat with advantages in full license portfolio, scale, supply chain, and member system

Risk Type	Specific Content
Hainan Policy Underperformance	If policy support is lower than expected, the recovery of Hainan offshore duty-free sales may fall short of expectations
Obstacles to Downtown Duty-Free Shop Opening	There is uncertainty about the opening progress of downtown duty-free shops in Beijing and Shanghai
Intensified Competition in Port Duty-Free	Pressure from changes in the competitive landscape of Shanghai Airport’s duty-free shops
High-End Consumption Underperformance	The recovery progress of consumption among high-net-worth individuals may be weaker than expected
Competition Risk from Cross-Border E-Commerce	Diversion impact of cross-border e-commerce on duty-free consumption

• Pay attention to the verification of Spring Festival holiday consumption data
• Pay attention to the sustainability of Hainan offshore duty-free sales

• Pay attention to the improvement margin of Q1 performance report
• Pay attention to the operation of downtown duty-free shops
• Pay attention to further policy support measures

• As the leader in the duty-free industry, China Duty Free has good allocation value against the backdrop of high-end consumption recovery and Hainan Free Trade Port construction
• The target price of RMB 113.90 corresponds to a 45x P/E ratio for 2026, and a “Buy” rating is assigned for initial coverage[4]

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[1] Xinhua Net - Hainan Free Trade Port’s First Month of Customs Closure Sees Offshore Duty-Free Sales Reach RMB 4.86 Billion (http://finance.people.com.cn/n1/2026/0118/c1004-40647565.html)

[2] East Money - Hainan Free Trade Port Marks One Month of Customs Closure, Offshore Duty-Free Consumption Continues to Heat Up (https://finance.eastmoney.com/a/202601193622728643.html)

[3] Sina Finance - Hainan Free Trade Port’s First Month of Customs Closure Sees Offshore Duty-Free Sales Reach RMB 4.86 Billion (https://finance.sina.com.cn/roll/2026-01-19/doc-inhhuquf1497626.shtml)

[4] Guojin Securities Research Institute - In-Depth Research on China Duty Free: High-End Consumption Bottoms Out and Recovers, Duty-Free Leader Rides the Wave (https://caifuhao.eastmoney.com/news/20260114162244417527890)

[5] Duty-Free Industry Research Report - “Hainan Effect” Booms! Duty-Free Industry Regains “Vitality” (https://www.hiipb.com/news/show-20691.html)