First CNY After Reopening: Did CTG Duty Free Pass?

Tonight, $CTG DUTY-FREE(601888.SH) (CTG Duty Free) released its Q1 2026 results. As the annual report was just out, the thesis is broadly unchanged, so Dolphin Research offers only a brief take:

1) Top line not inspiring: Q1 2026 revenue was approx. RMB 16.9bn, up nearly 1% YoY. Growth decelerated vs. last quarter. Despite the first Lunar New Year peak season after Hainan’s customs closure, CTG’s sales recovery was underwhelming.

By contrast, offshore (island) duty-free sales for the industry performed much better. Sector sales rose 26% YoY in Q1, accelerating from 19% in Q4. On drivers, shopper count rose 18% YoY, and spend per shopper increased 7% YoY, lifting both volume and price. In this context, CTG’s muted sales suggest either airports and other channels underperformed (it also lost part of the Shanghai Airport duty-free concession), or tax-paid sales kept shrinking. If it is the former, that is a negative signal.

2) GPM broadly flat; marketing expense cuts did the heavy lifting: CTG’s GPM was 33.6%, up modestly YoY and QoQ (less than 100bps). With traffic and ticket size stabilizing post-closure, GPM appears to have bottomed and is improving. That said, the magnitude is limited, so GP rose only 3% YoY, not a strong print.

Fortunately, marketing expense has been trending down for several quarters, falling ~7% YoY this quarter (about RMB 160mn). Together with roughly RMB 170mn incremental GP from growth, the two added up to an increase of RMB 330mn YoY in CTG’s GP minus selling expenses (core profitability metric), or about +10%.

3) Attributable NP up 21% YoY: G&A plus R&D was 2.7% of revenue, slightly above last year’s 2.6% but not impactful. However, taxes as a percentage of revenue rose from 2.6% to 3.0%, which alone shaved off about RMB 70mn of profit. Dolphin Research believes this mainly reflects a mix shift toward duty-free (which bears additional concession tax) while tax-paid sales shrank. Dragged by this, OP and PBT each increased by less than RMB 280mn YoY, narrower than the rise in GP minus selling expenses.

Two offsets helped this quarter: a lower effective tax rate at 15% vs. 18% a year ago, and materially lower minority interest, likely tied to changes in the Shanghai Airport operating entity. Previously run by a JV, operations are now jointly run by CTG and Shanghai Airport.

As a result, attributable NP rose by RMB 410mn YoY (+21%), which is a decent outcome.

Dolphin Research view:

In short, the quarter continued the post-closure recovery trend in Hainan. But objectively, during the first Lunar New Year peak after the closure, CTG’s recovery did not strengthen meaningfully vs. Q4, and it already seems to have hit a soft ceiling under a ‘weak recovery’ pattern.

If this persists, the market will likely be dissatisfied. We need to see whether the ‘weak recovery’ is due more to lingering drag from tax-paid sales, or because offshore duty-free recovery is offset by weakness in other duty-free channels, i.e., demand is merely shifting channels rather than truly growing. Which it is matters for valuation.

As noted earlier, CTG’s main tailwinds come from Hainan’s customs closure and further easing of offshore duty-free policies:

1) Including: a. broader duty-free categories, adding pet supplies, carry-on musical instruments, micro drones, small appliances, etc., lifting categories from 45 to 47; b. wider eligibility, allowing departing tourists to enjoy offshore duty-free and island residents with any departure record in a calendar year to make unlimited duty-free purchases; c. broader sourcing, allowing select domestic goods to be sold in offshore duty-free stores.

2) Entry/exit for overseas visitors to Hainan has become much more convenient, which should boost traffic and potential duty-free shoppers. In the medium to long term, with its free-trade-port positioning, Hainan could build stronger re-export trade, manufacturing and related services, attract quality firms and migrants, and lift overall consumption power.

Recent offshore duty-free data show sector sentiment improved further in Q1. But this has not translated much into CTG’s results, so further observation is needed.

On the negative side, CTG lost the Pudong T1 duty-free concession. Meanwhile, Pudong T2 and Hongqiao T1 & T2 are operated by a CTG–Shanghai Airport JV (CTG 51%, Shanghai Airport 49%). This quarter’s prints indeed suggest non-offshore channels may be soft.

In sum, the results largely validate prior views. But with the market already trading the ‘closure’ tailwind and the stock once topping RMB 100, Dolphin Research thinks the current lukewarm setup is unlikely to draw capital to re-test prior highs.

On valuation, Wind consensus still pegs 2026 attributable NP at RMB 5.0bn, while buy-side may be higher at RMB 5.5–6.0bn. Historically, in weak years (e.g., 2024–2025), Q1 can account for >50% of full-year profit; in strong years (2021, 2023), Q1 is only about 1/3–1/4.

Taking the midpoint, if Q1 2026 is 35%–40% of full-year, full-year NP implies ~RMB 5.9–7.0bn. If sentiment does not deteriorate meaningfully, the buy-side’s prior profit bar is reasonably achievable.

At the current market cap (using the lower HK line), that equates to about 18–20x PE on 2026 earnings. Absolute valuation is not low, but for CTG this is fairly conservative, so it is not expensive.

Given the company’s mixed track record, our conviction is limited. We would treat it as a beta play on Hainan’s closure dividend.

Key charts below:

1. Revenue trends