Duty-free Sales Affected By The Pandemic; Upbeat On Haitian
We expect limited impact from the weakening of the renminbi (<1.5% on 1% renminbi depreciation to US$) to consumer names’ 2023 net profit. The lacklustre duty-free sales in Haikou and Sanya during the holidays were mainly due to sporadic COVID-19 cases, static management, and nucleic acid testing for all residents and tourists. We foresee short-term trading opportunities for Haitian on the recent debate over product quality, which may facilitate product upgrade in the condiment sector. Maintain OVERWEIGHT.
WHAT’S NEW
• Duty-free (maintain OVERWEIGHT). Last week, the daily average number of flights in Sanya Phoenix Airport improved to 115 (+14% wow), while that of Haikou Meilan Airport was 253 (-14.1% wow), recovering to 64.4% of the level seen nine weeks ago. Hainan’s Haikou city was put under “temporary static management” on 6 Oct 22 (7am to 10 pm) after discovering a new COVID-19 case during quarantine control. Some areas of Haitang District in Sanya were also under lockdown since 3 Oct 22 (2pm). According to Hainan’s Department of Commerce, the ten offshore duty-free stores had 269,500
customer visits for 1-7 Oct 22, generating daily sales of over Rmb150m (vs Rmb272.5m in 1-6 Oct 21). CDF Haikou International Duty-Free Mall will officially launch on 28 Oct 22. The mall will feature more than 800 brands; some shops will be the brand’s first or exclusive shop in China.
• Sportswear (maintain OVERWEIGHT). In Sep 22, prices of cotton and polyester filament yarn (PFY) saw -0.9%/+2.2% mom changes. Nike’s 1QFY23 revenue in China fell 16.4% yoy (+6.1% qoq) to US$1,656m, while EBIT margin shrank to 32.7% (-2.7ppt yoy; -1.3ppt qoq). Pousheng’s Aug 22 operating revenue was Rmb1,499m (+7% yoy). Anta’s International Integrated Operation Center signing ceremony was held in Suzhou. The project, which total investment exceeds Rmb1b, is expected to commence construction in 2023 and put into use in 2025. The project is positioned to integrate import distribution, sales settlement, digitalize operation, intelligent warehousing to optimise business processes.
• Baijiu (maintain OVERWEIGHT). Last week, wholesale prices of boxed/ unboxed Feitian Moutai averaged Rmb3,040/Rmb2,733 per bottle. Wholesale prices of Wuliangye averaged Rmb980 per bottle, while wholesale prices of Qinghua 20/30 averaged Rmb359/Rmb810 per bottle. Last week, the i-Moutai app released 0.14m of Moutai products (for subscription) and the overall success rate of 44.2m bid entries was 0.31%. As of 8 Oct 22, cumulative sales of products for subscription on i-Moutai app totalled
Rmb8.6b. On 2 Oct 22, i-Moutai announced that its offline delivery service is available in over 1,700 stores across 31 provinces, and cumulative visits topped 5.7m consumers.
