On the afternoon of October 15th, China Tourism Group Duty Free Corporation Ltd. (referred to as: China Duty Free), the leading player in the 200 billion duty-free market, announced that its Chairman and legal representative, Li Gang, passed away due to illness on October 14th, 2023.
Public records show that Li Gang was a veteran of China National Tourism (China National Travel). He was the Chairman of China Tourism Group Duty Free Corporation Ltd. (listed on the SH601888, with a stock price of 97.18 yuan and a market capitalization of 2011 billion yuan) and the Deputy General Manager of China National Tourism Group Co., Ltd. Before the renaming of China Duty Free, from March 2017 to August 2019, Li Gang served as the Chairman of China National Travel Shares Co., Ltd. (the former name of “China Duty Free”). In August 2019, due to work adjustments, Li Gang resigned from his position as Chairman and Director of China Duty Free. However, in February of this year, Li Gang was elected as the Chairman of the Fourth Board of Directors of China Duty Free and in June, he continued to be elected as the Chairman of the Fifth Board of Directors.
According to media reports, Li Gang was one of the key figures in guiding the transformation of China Duty Free to focus on the duty-free business. Key decisions made during his tenure as Chairman included the acquisition of the Japanese duty-free business, expanding duty-free operations in major airports, and setting up a joint venture with the famous French travel retailer Lagardère to invest in Hong Kong International Airport’s tobacco and alcohol operations.
This laid the foundation for China Duty Free’s explosive growth in the Hainan duty-free market, positioning it as a dark horse breaking through the competition. China Duty Free’s development continues to follow the strategic trajectory set during those years.
Li Gang, a veteran of China National Travel, was Chairman for less than 9 months.
Public records show that Li Gang graduated with a Bachelor’s degree in History from Jilin University.
Li Gang had held various positions, including posts at the National Tourism Administration, the Information Management Department of Duty-Free Co., the Development Management Department, the General Manager’s Office, the Operation Department, China National Travel Group Co., Ltd., and China National Travel Shares Co., Ltd.
It’s worth noting that Li Gang had just taken office this year and served for less than 9 months.
On February 2nd of this year, China Duty Free announced that the former Chairman, Peng Hui, had retired. Li Gang then returned to China Duty Free, taking over as Chairman of the Fourth Board of Directors, Chairman of the Board’s Strategy Committee, and member of the Board’s Nomination Committee.
According to the 21st Century Business Herald, Peng Hui was a key figure in the rise of China Duty Free and had been Chairman since 2019. Under his leadership, China National Travel was renamed “China Duty Free”, with its market capitalization soaring to 750 billion yuan. It secured the largest IPO in Hong Kong stocks in 2022 and was considered a “duty-free pioneer.”
According to Securities Times·e Company, external interpretations suggest that the change in China Duty Free’s management team might be intentionally timed for 2023, a year expected to see a resurgence in tourism and duty-free sales.
Public data shows that China Tourism Group Duty Free Corporation Ltd. (previously China National Travel Shares Co., Ltd., China Duty Free, SH601888, with a stock price of 97.18 yuan and a market capitalization of 2011 billion yuan) is a listed company controlled by China National Tourism Group Co., Ltd. with a 50.3% stake. China Duty Free is a large joint-stock company focusing on travel retail business and was officially listed on the Shanghai Stock Exchange in 2009. China Duty Free fully owns China Duty-Free Goods (Group) Co., Ltd.
The official website reveals that China Duty-Free Goods (Group) Co., Ltd. (referred to as Duty Free Group) is a state-owned specialized company authorized by the State Council to conduct duty-free business nationwide. The Duty Free Group has established long-term, stable cooperation with more than 1,300 world-famous brands, setting up over 200 duty-free stores covering airports, in-flight sales, borders, passenger terminals, train stations, supply to foreign ships, diplomats, cruise ships, and downtown (offshore, departure) types in more than 30 provinces, municipalities, autonomous regions, special administrative regions, and countries like Cambodia. It provides duty-free goods services to nearly 200 million domestic and foreign tourists annually, making it the world’s most diverse and largest single-country travel retailer.
China Duty Free primarily engages in duty-free travel retail businesses, including wholesale and retail of duty-free goods such as tobacco, alcohol, fragrances, luxury goods, clothing, electronics, and more. Additionally, the company also invests in integrated business complexes centered on duty-free businesses. Its wholly-owned subsidiaries, Duty Free Company and Duty Free Investment Company, are responsible for the company’s duty-free business and tourism destination integrated business development, respectively.
Li Gang had deep ties with China Duty Free. Before it was renamed as China Duty Free, its original name was China National Travel, and Li Gang was a veteran of China National Travel. Before he served as Chairman of China Duty Free, from March 2017 to August 2019, he held the position of Chairman.
Previously, China Duty Free’s acquisition of Japanese duty-free businesses, expansion into major airport duty-free operations, and establishing a joint venture with the famous French travel retailer Lagardère to invest in Hong Kong International Airport’s tobacco and alcohol operations, were all related to Li Gang. Before becoming Chairman of China Duty Free, Li Gang was the Deputy General Manager of China Duty Free’s controlling shareholder, China National Tourism Group.
Years ago, Li Gang publicly stated to the media, “Although China’s outbound tourism is growing rapidly, the duty-free industry has not developed in tandem. There’s still vast room for growth in the duty-free sector.” In 2018, Li Gang clearly highlighted “internationalization” as the key word for the company’s future development, and he regarded the development opportunities brought by Hainan as the top priority for the group.
According to the Yangtze Business Daily, in 2023, China Duty Free has six offshore duty-free stores in Hainan Province, including the world’s first and second-largest duty-free commercial complexes, Haikou International Duty-Free City and Sanya International Duty-Free City.
At present, China Duty Free continues its territorial expansion. It’s reported that the commercial part of the first phase of Sanya International Duty-Free City has been completed, with the decorative curtain wall and refined decoration model segment completed. The hotel part started underground structural construction. The second phase (River Heart Island project) of Sanya International Duty-Free City has further optimized its commercial positioning, emphasizing the modification of the project and the introduction of luxury brands. The third phase (a joint venture with Swire Properties) of Sanya International Duty-Free City steadily advanced architectural design and earthwork construction. The Haikou International Duty-Free City project plot two (Yue Ling Bay project) has been completed and accepted, and other plots are progressing as planned. The French Garden project of Sanya Phoenix International Airport is steadily advancing and preparing for its opening.
Rebound in Performance
Since the second half of the year, China Duty Free’s performance has rebounded. On the evening of October 8th, China Duty Free released its performance express for the first three quarters of 2023, achieving a revenue of 508.37 billion yuan, a year-on-year increase of 29.14%, and a net profit of 51.99 billion yuan attributable to the parent company, a year-on-year increase of 12.33%. The net profit excluding non-recurring gains and losses was 51.83 billion yuan, a year-on-year increase of 13.1%.
In the first half of 2022 and 2023, China Duty Free achieved a net profit attributable to the parent company of 50.3 billion yuan and 38.66 billion yuan, respectively, a year-on-year decrease of 47.89% and 1.83%. The net profit excluding non-recurring gains and losses was 49.02 billion yuan and 38.54 billion yuan, respectively, a year-on-year decrease of 48.59% and 1.87%.
China Duty Free attributes its performance growth to the continuous optimization of product structure and business layout, deepening business adjustments, improving management services, and promoting steady development of the main business with multiple measures. Secondly, the company emphasizes sustainability, pursuing balanced growth in scale and profit.
According to its 2023 interim report, since the beginning of this year, the Hainan tourism market has shown a good rapid recovery trend. According to the statistics from the Hainan Provincial Department of Tourism, Culture, Radio, Television and Sports, the number of tourists received in Hainan in the first half of 2023 was 46.066 million, a year-on-year increase of 32.8%. The total tourism revenue was 916.1 billion yuan, a year-on-year increase of 42.4%. Both the number of tourists received and the total tourism revenue surpassed the levels of the same period in 2019.
Haitong International Research believes that China Duty Free is expected to continue its recovery through the following channels: 1) Hainan: As duty-free sales stabilized and rebounded in July, multiple projects landing in the second half of 2023 are expected to boost sales in Hainan. 2) Airports: As international passenger flow gradually recovers, the company’s airport channel is expected to recover gradually. 3) Exchange Rate: If the RMB appreciates, the company’s procurement costs are expected to decrease, and profit growth is expected to be released. The securities firm believes that the company, as an industry leader, has competitive advantages in scale, layout, and supply chain. It is expected to release recovery elasticity during the post-epidemic recovery phase and occupy a leading position in the medium and long-term market expansion.
On the secondary market, on Friday (October 13th), China Duty Free fell by 3.84%, touching a low of 96.77 yuan, marking a more than three-year low since June 5th, 2020. As of the close of that day, the A-share stock price of China Duty Free was 97.18 yuan/share, with a total market capitalization of 2011 billion yuan. The stock price has dropped more than 50% since the beginning of the year. Compared with the historical high of 396.64 yuan on February 18th, 2021, China Duty Free has accumulated a drop of 74.49%.