Consumption coupons to boost recovery
- The Beijing Municipal Government announced that it would issue Rmb100m in consumption coupons to boost catering demand from 18 July.
- By the end of June, more than 20 provinces had issued consumption coupons for a total amount of Rmb10bn, which we expect to help the consumption recovery.
- The recent executive meeting of the State Council also indicated the central government’s strong intention to improve employment and boost consumption.
- We expect the consumption coupons to benefit the catering and tourism sectors; our related top picks are China Duty Free, Tsingtao Brewery and Trip.com.
Consumption coupons to boost recovery
The Beijing catering coupons will be distributed through online platforms, like Meituan and Eleme, from 18 Jul to 16 Aug, including Rmb15 and Rmb30 coupons for Rmb50 and Rmb100 purchases. More than 70k catering merchants will participate in this program. In addition to Beijing, more than 20 provinces and cities, like Shenzhen, Sanya and Hangzhou, had issued consumption coupons by the end of Jun to boost catering, retail and tourism consumption. Sanya also issued its second-phase duty-free retail coupons on 18 Jul, including Rmb800, Rmb500 and Rmb200 coupons for Rmb8000, Rmb5000 and Rmb2000 purchases. We expect all these consumption coupons to drive consumer confidence and help the consumption recovery in 2H22F.
Government’s strong intention to drive consumption
The recent executive meeting of the State Council held on 13 Jul indicated the central government’s strong intention to improve employment and boost consumption. The State Council encouraged local governments to provide qualified start-up companies with Rmb200k each in interest-free loans and increase the employment for farmers and graduates. The meeting said employers should not discriminate against workers who had been Covid positive. The government also mentioned that it would launch a nationwide stimulus policy for home appliances, like exchanging old appliances for new.
Total retail sales growth in Jun showed signs of recovery
In June, total retail sales in China reached Rmb3.9tr, up 3.1% yoy, a big improvement compared to -6.7% yoy in May. Online retail sales growth for physical goods continued to grow to Rmb1.2tr in Jun, up 8.2% yoy, accounting for 30.8% of total retail sales. Offline retail sales grew 1% yoy to Rmb2.7tr, which marks the first time it was back to yoy positive growth since Feb 2022. Catering sales were still down by 4% yoy in Jun, but up from – 21.1% yoy in May, indicting the sector still needs time to recover from the lockdown policy. Sales of discretionary products recovered well in Jun. Sales of cosmetics, gold and jewelry, and autos grew 8.1%, 8.1% and 13.9% yoy in Jun. We expect China’s total retail sales growth to recover to mid-single-digits yoy in 2H22F.
Traffic volume recovery on Hainan Island since Jun
Along with the improving Covid situation since Jun, we note that traffic volume to Hainan Island started to recover. We expect China Duty Free’s sales growth to return to yoy flattish in Jun and increase by double digits yoy in Jul. China Duty Free’s offline traffic volume recovered strongly in Jun. Its product mix also improved, as luxury fashion brands took market share from cosmetics products, which should benefit its margin expansion. We expect the opening of China Duty Free’s duty-free shopping mall in Haikou city in 2H22F to further boost the company’s offline sales growth.
Domestic consumption expected to recover in 2H22F
Driven by the consumption coupons and stimulus policies, we expect the catering and tourism sectors to recover, benefiting China Duty Free, Tsingtao Brewery and Trip.com. Downside risks includes a pandemic rebound which could affect domestic travel policy changes, and slowdown the pace of tourism market recovery.
China Tourism Group Duty Free
ADD, TP Rmb282.0, Rmb206.6 close CDF has a strong footprint in Hainan’s duty-free market and has accelerated its online channel integration and expansion. Along with its improving bargaining power with brands, CDGF will have an advantage in the duty-free market and e-commerce sales
ADD, TP HK$275.0, HK$204.0 close Given the significant rebound in the overseas tourism markets after the removal of travel restrictions, and the gradual recovery in domestic tourism, we expect both the sales and margin of Trip.com to improve qoq and a full recovery in 2023F.
ADD, TP HK$90.00, HK$75.10 close As one of China largest domestic breweries, Tsingtao is benefiting from the current beer consumption upgrade trend in China. With its diversified premium product profile, we expect the company’s ASP and margin to consistently improve in the medium term.