On the first day of the National Day holiday, while countless people were still stuck on highways, the duty-free shops in Hainan were already bustling with crowds. Statistics from Haikou Customs were quickly released, showing that on October 1, Hainan's offshore duty-free shopping amount reached 107 million yuan, a year-on-year increase of 21.17%, with 18,900 person-times participating in shopping and a cumulative 83,000 items purchased, with growth rates all exceeding double digits.

Duty-free shopping, as a high-end retail format tagged with "consumption upgrading," has been constantly talked down over the past few years. Also constantly talked down is the giant company standing behind duty-free shopping — China Tourism Group Duty Free Corporation Limited (ASX: 601888). As the absolute dominant player in Hainan's offshore duty-free market, CTG Duty Free's market share in Hainan has consistently remained between 70% and 80%. To some extent, any growth in Hainan's duty-free market means growth in CTG Duty Free's financial reports. However, in contrast, CTG Duty Free's stock price has experienced a long slide in recent years. Since the beginning of 2026, CTG Duty Free's A-share stock price has cumulatively fallen by about 45%. And from its peak of 421 yuan in 2021, CTG Duty Free has fallen all the way to around 51 yuan now, with market value shrinking from a peak of 833.8 billion yuan to approximately 106.9 billion yuan, a decline of over 85%. Now that three-quarters of 2026 has passed, can CTG Duty Free still pull itself out of the trough?

Where to start

To clearly explain CTG Duty Free's performance this year, one must first look at the financial reports. In the first half of 2026, China Tourism Group Duty Free achieved operating revenue of 27.655 billion yuan, a slight year-on-year decrease of 1.76%; but net profit attributable to shareholders reached 3.106 billion yuan, a sharp year-on-year increase of 19.49%. Revenue fell while profit rose — this seemingly contradictory situation precisely explains CTG Duty Free's trajectory this year.

The slight decline on the revenue side was mainly dragged down by the airport duty-free business. At the beginning of this year, a new round of bidding for duty-free operating rights at Shanghai Airport and Beijing Airport was completed. Although CTG Duty Free successfully won multiple core bidding sections, during the transition between old and new contracts, venue transfers and store renovations required time, causing revenue in the Shanghai region to plummet 70.1% to 2.053 billion yuan in the first half. But turning to Hainan, the situation immediately changed. In the first half, CTG Duty Free's revenue in the Hainan region reached 18.554 billion yuan, a year-on-year surge of 23.4%. Hainan shouldered more than half of CTG Duty Free's business, contributing nearly 70% of revenue, and gross margins continued to improve.

The profit side performed even more impressively. In the first half, CTG Duty Free's overall gross margin reached 33.90%, up 1.14 percentage points from the same period last year, and has risen quarter-on-quarter for three consecutive quarters, with the gross margin on duty-free goods reaching as high as 36.89%. This shows that CTG Duty Free is becoming increasingly profitable in selling goods. For CTG Duty Free, revenue only fell by less than 2 percentage points while profit rose by nearly 20 percentage points, indicating that the company is shifting from prioritizing scale to prioritizing development quality. And looking solely at the Hainan duty-free market, CTG Duty Free's goldmine remains quite solid. According to Haikou Customs data, from January to June 2026, Hainan's offshore duty-free shopping amount reached 19.92 billion yuan, with 2.793 million shoppers, up 18.8% and 12.6% year-on-year respectively. Since the implementation of the new offshore duty-free policy in November 2025 through the end of April this year, customs-supervised offshore duty-free shopping amounts cumulatively reached 22.22 billion yuan, a year-on-year increase of 22.6%. After Hainan's customs closure operation, the duty-free policy did not become nominal. On the contrary, after the customs closure, the price advantage of duty-free channels was not weakened but continued to be released.

Because all consumer goods still require taxation, only duty-free shops enjoy tax preferences. Moreover, duty-free policies continue to be strengthened. The new policy from last November expanded duty-free categories from 45 major categories to 47 major categories, adding pet supplies and portable musical instruments, adding 15 types of small home appliances including robot vacuum cleaners and vacuum cleaners, and adding digital photography equipment and drones to electronic consumer goods. These categories may sound minor, but they precisely target the needs of young consumers and family consumers. This incremental portion is exactly the imaginative space for future growth of the duty-free industry as it enters "middle age." In addition, since last year, CTG Duty Free has intensively participated in duty-free bidding at China's most important airports, winning operating rights for multiple core bidding sections in one go, including Shanghai Pudong Airport T2+S2, Hongqiao Airport T1, Capital Airport T3, and Baiyun Airport T2, with transfer periods as long as 8 years. In March this year, CTG Duty Free completed the acquisition of DFS Greater China retail business for US$294 million. Through this acquisition, CTG Duty Free not only acquired DFS stores in Hong Kong and Macau but also brought in LVMH Group and the Miller family as strategic shareholders, issuing H-shares to both respectively. But beneath the halo, CTG Duty Free's "midlife crisis" still cannot be avoided.

Why the stock keeps falling

In recent years, behind CTG Duty Free's continuous stock price decline are multiple challenges the company faces. And CTG Duty Free has not yet given a sufficiently convincing answer. The most direct and obvious old problem is that the license dividend is receding, and the days of easy money are gone forever. The reason CTG Duty Free could long enjoy high profit margins is that it is a licensed operator holding scarce licenses and channel resources. But this logic is being broken. With the liberalization of duty-free operating qualifications, Hainan has formed a diversified competitive landscape of 6 operating entities and 12 offshore duty-free stores, with new players such as Hainan Tourism Duty Free, Hainan Holdings Duty Free, and Wangfujing entering the market. The golden age of one company dominating is gone forever. According to institutional estimates, under the background of future industry expansion, CTG Duty Free's market share may fall from nearly 90% to around 80%, with profitability under medium-to-long-term pressure. In the past, CTG Duty Free chose brands; now brands choose CTG Duty Free — this is precisely the change happening in the market.

Second, consumers' wallets are not so easy to open anymore. In May 2026, Hainan's duty-free sales were flat year-on-year, with growth significantly slowing from 10% in April and 25% in March, and sales from May 6 to 31 even declined 3% year-on-year. More worrying is that although per-customer spending rose 2% year-on-year and average price per item rose 5%, showing that high-net-worth customers' purchasing power remains strong, the number of items purchased decreased 3% year-on-year. This means consumers came, but their willingness to spend is shrinking. The rise in per-customer spending is more driven by high-priced categories rather than genuine expansion in consumption volume. Meanwhile, luxury brands such as LV and Dior, as well as high-end skincare brands like La Mer and SK-II, are accelerating direct-to-consumer and online operations, directly squeezing CTG Duty Free's profit space as a channel operator. Coupled with the continued diversion from outbound travel, whether Hainan's duty-free price advantage can retain consumers is a question mark.

Apart from the pressure on Hainan duty-free, airport channels are also facing sustained pressure. Taking the duty-free operating rights bidding at Beijing and Shanghai airports as an example, because Shanghai Airport Group modified the bidding rules, explicitly stating that "bidding sections one and two cannot both be won by the same bidder," CTG Duty Free lost the operating rights for the inbound and outbound duty-free shops at Shanghai Pudong Airport T1 terminal and S1 satellite hall international area, with that section taken by Dufry, a subsidiary of global duty-free giant Dufry. The impact of this on CTG Duty Free caused its A-shares to hit the daily limit down on February 24, with Hong Kong shares falling more than 22% over three days. Moreover, the profit model of airport channels itself is deteriorating. Under the new duty-free contract at Capital Airport, CTG Duty Free must pay a fixed fee of 480 million yuan per year, plus a commission of 5% to 9% of sales. Although the comprehensive revenue-sharing ratio is similar to 2024-2025 levels, it is far below the 40% before the pandemic. But ultimately, the root of these problems lies within the industry and is a problem faced by the entire duty-free industry. As the big brother of the duty-free industry, CTG Duty Free's position remains difficult to easily shake.

But the problem is that frequent turnover in CTG Duty Free's internal management has raised doubts about the company's strategic continuity. In the past two years alone, CTG Duty Free changed chairmen three times — Peng Hui resigned in February 2023 and Li Gang took over; Wang Xuan became the new chairman in October 2023; Wang Xuan resigned again in October 2024, and Fan Yunjun became the latest leader. Three leadership changes in two years means the company's internal governance may have deep-seated problems. Similarly, acquiring DFS Greater China business for US$294 million sounds like a good deal. But looking closely at the data, DFS Hong Kong and Macau business had revenue of 4.149 billion yuan in 2024, with net profit of only 128 million yuan, a net margin of just 3.07%, while CTG Duty Free's own net margin, although also declining, still remained at around 6.7% in 2025. In other words, the asset CTG Duty Free bought back has weaker profitability than its own main business. How to raise the net margin of Hong Kong and Macau stores to the company's average level is a considerable challenge.

Even more concerning is the risk of goodwill impairment. The acquisition consideration was approximately US$395 million, and the Macau stores used a 14.54 times EV/EBITDA multiple, slightly above the industry average. CTG Duty Free's 2025 performance has already been hit by goodwill impairment, and if the Hong Kong and Macau stores' operations fail to meet expectations in the future, further impairment could be triggered, directly impacting the income statement. In addition, regarding the Hong Kong business, the 7 Macau stores in the acquired asset package are a relatively stable source of profit, while the 2 Hong Kong stores have not yet achieved stable profitability in the past two years. Revitalizing the Hong Kong stores is a direct test of CTG Duty Free's operational capabilities.

What to watch going forward

In the short term, however, the 107 million yuan in sales on the first day of National Day has already gotten off to a good start, and the fourth quarter has traditionally been the golden period for duty-free consumption. Combined with the continued rise in Hainan tourism popularity, CTG Duty Free's revenue performance in the second half is likely to look much better than the first half. In airport channels, revenue in the Shanghai region plunged 70% in the first half, which is both a drag and an opportunity. As store renovations under new contracts are gradually completed and operations get on track, airport channels are expected to see significant revenue recovery in the second half. Affected by multiple factors, the number of Chinese tourists traveling to Japan has dropped significantly, and Japan's duty-free industry has been noticeably impacted. Research from Sinolink Securities shows that in 2025, mainland Chinese tourists' shopping amount in Japan reached 753.3 billion yen. Assuming 30% of that consumption flows back to domestic duty-free shops, it could add approximately 10 billion yuan of space to the duty-free industry. Hainan, as one of the most popular alternative travel destinations in China, is expected to be the biggest beneficiary of this wave of consumption repatriation.

Of course, risks are not absent. The sustainability of consumer power recovery still needs observation, especially the sales trend of high-priced categories. However, from a valuation perspective, CTG Duty Free's current A-share price is around 51 yuan, with a total market value of approximately 106.9 billion yuan and a dynamic price-to-earnings ratio of about 17 times. In other words, the market's pessimistic expectations for CTG Duty Free may already be fairly fully reflected in the current stock price. Looking back over the past two years, China Tourism Group Duty Free has gone through a rather difficult period. The stock price has fallen sharply from its high, revenue growth has slowed, and the market has developed doubts about the growth potential of the duty-free industry. But CTG Duty Free in 2026 may be able to prove that at least the company has not been lying flat. That 107 million yuan in duty-free sales on the first day of National Day may also prove that Chinese people's enthusiasm for consumption has never disappeared — it is just waiting for a better reason to be released.