Last year's net profit increased by 33%, with a proposed dividend payout of 3.4

Revenue and net profit increased by more than 24% and 33% year-on-year, respectively. With the disclosure of the 2023 annual report, China Duty Free (CDF), known as "Duty-Free Mao" with a stock code of 601888.SH, saw its stock price plummet by 61% over the year, and its performance for the last year has become clear.

On the evening of March 27, China Duty Free released its 2023 annual report. Due to the steady growth in revenue and net profit, the company plans to distribute a cash dividend to shareholders at a ratio of 1.65 yuan per 10 shares, with a total dividend payout of 3.414 billion yuan, marking the highest dividend in history, and a dividend payout ratio of 50.85%.

Comparatively, it seems that China Duty Free has shaken off the downturn in performance experienced in 2022. However, the company's revenue scale in 2023 was only on par with that of 2021, and the net profit attributable to the parent company was less than 70% of that in 2021.

The year 2023 marked the first year of recovery for offline passenger flow, coupled with the renegotiation of rental agreements with the two major airports in Beijing and Shanghai. The market has expectations for the company's performance to continue to recover in 2024. Northbound capital, which was once a significant driver of China Duty Free's rise, sold off more than 70 million shares in 2023. Whether it will turn bullish in 2024 is also one of the company's biggest highlights.

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Performance grew steadily, but profits were still less than 70% of 2021's.

For investors in China Duty Free, 2023 was a very "arduous" year. During the year, China Duty Free's stock price fell by 61%, reaching a low of 75.12 yuan, a maximum drawdown of 81% from the historical high of 396.64 yuan in February 2021, making it the second-highest decline in the CSI 300 sector that year.

Growth in performance is crucial for future valuation and pricing. The financial report shows that the company achieved a revenue of 67.54 billion yuan in 2023, a year-on-year increase of 24.08%, and a net profit of 6.713 billion yuan, a year-on-year increase of 33.46%. The net profit after deducting non-recurring gains was 6.651 billion yuan, a year-on-year increase of 35.71%. The company plans to distribute a cash dividend of 3.414 billion yuan, the highest in history, with a dividend payout ratio of 50.85%.

The first and fourth quarters are the peak revenue periods for China Duty Free, with revenues of 20.77 billion yuan and 16.703 billion yuan, respectively. This is mainly due to the peak tourist season in Hainan during these periods, and the revenue from Hainan's offshore duty-free business accounts for about 60% of the company's total revenue. In the fourth quarter, the revenue grew by 10.9% year-on-year and 11.5% quarter-on-quarter, while the net profit increased by 274.7% year-on-year and 12.4% quarter-on-quarter.

The recovery of offline travel shopping was the main driver of the steady growth in China Duty Free's performance in 2023. The Hainan region achieved a revenue of 39.65 billion yuan, a year-on-year increase of 14.3%, and the Shanghai region (mainly Shanghai airport duty-free shops) achieved a revenue of 17.82 billion yuan, a year-on-year increase of 26%.

China Duty Free had set a historical best performance in 2021. The year before, the Hainan offshore duty-free policy was officially launched. In terms of performance scale, the company's revenue in 2023 was on par with that of 2021, and the net profit was about 69% of that in 2021.In 2023, China Duty Free (CDF) saw the implementation of multiple projects in Hainan, with the opening of the second phase of the Sanya Phoenix Airport Duty-Free Shop and the commencement of operations at the Global Beauty Plaza in the C area of the Sanya International Duty-Free City. The second phase of the Sanya International Duty-Free City, known as Yun Jie Island (formerly River Heart Island), underwent a renovation and upgrade, with top brands such as Louis Vuitton and Dior establishing their presence.

Regarding the border duty-free shops, in 2023, CDF won the bid for the inbound and outbound duty-free shop project at Tianjin Binhai International Airport, as well as the outbound duty-free shop projects at Dalian Zhoushuizi International Airport, Yunnan Tianbao Port, Yunnan Ruili Port, and Yunnan Wanting Port. Additionally, CDF obtained the operating rights for tax-paying projects at Chengdu Shuangliu International Airport, Shanghai Pudong International Airport, Shanghai Hongqiao International Airport, Harbin Taiping International Airport, and Guangzhou South Station, further consolidating the company's channel advantages at domestic large and medium-sized airports and ports.

The market recovery is still a work in progress, and it remains to be seen whether this year's performance will rebound. In response to the recovery trend of domestic and international tourism, CDF estimates that by 2024, the number of domestic tourism trips and domestic tourism revenue will exceed 6 billion person-times and 6 trillion yuan, respectively, essentially returning to the levels of 2019. Compared to the rapidly recovering domestic tourism market, the inbound and outbound tourism market may require an additional 4 to 5 quarters to return to the peak levels of the previous cycle. The full realization of policy effects on the recovery of inbound and outbound tourism markets, as well as the comprehensive repair of the supply chain, will require more patience and effort.

The number of inbound and outbound tourists is directly related to the success of CDF's airport duty-free shops. Between 2018 and 2019, the company's Shanghai airport duty-free shop contributed about half of the company's operating income, mainly due to the peak in the prosperity of inbound and outbound tourism at that time.

Rent is a significant component of the cost of border duty-free operations. In 2023, CDF signed supplementary lease agreements with the Capital Airport and Shanghai Airport, making adjustments to the agreements and granting some rent reductions.

According to Haikou Customs, from January to February 2024, the offshore duty-free sales amounted to 9.701 billion yuan, a year-on-year decrease of 21.3%. The number of shoppers and the average purchase amount per person decreased by 3% and 19% year-on-year, respectively, indicating certain pressures. Currently, the commercial part of CDF's Haitang Bay Phase I, Plot No. 2, has started operations, while the hotel part is advancing with above-ground structural construction; the architectural design for Haitang Bay Phase III has been completed; and the construction of Plots 1-3 of the Haikou International Duty-Free City is progressing orderly.

In 2023, the main selling pressure on CDF's stock price came from Northbound Capital. According to financial reports, after Northbound Capital bought 13.5 million shares in the first quarter, it reduced its holdings by 36.9515 million shares, 29.8605 million shares, and 24.7063 million shares in the second, third, and fourth quarters, respectively, resulting in a net sale of 78.01 million shares for the year. By the end of 2023, Northbound Capital held 134 million shares of CDF, accounting for 6.86% of the circulating shares, while at its peak, Northbound Capital held up to 279 million shares of CDF.

Among public mutual funds, Liu Yan Chun, the fund manager of Jing Shun Great Wall, has always been a supporter of CDF. By the end of 2023, the Jing Shun Great Wall Emerging Growth and Jing Shun Great Wall Dingyi Mixed funds managed by Liu Yan Chun held 19.6114 million shares and 8.6504 million shares of CDF, respectively, accounting for a combined 1.44% of the circulating shares.