CTG bears brunt of China’s duty-free sales slump in Hainan

The duty-free shop operator’s revenue and net profit fell in the first half of this year as duty-free sales dropped on Hainan island, a major tourism hotspot

Key Takeaways:

• CTG Duty Free’s operating income fell 10% in the first half of 2025, while its net profit dropped 20%
• The weak performance comes as duty-free spending in shopping and tourism haven Hainan declines amid a resurgence of outbound travel from China

By Warren Yang

China’s duty-free shopping frenzy is long over, and China Tourism Group Duty Free Corp. Ltd. (1880.HK; 601888.SH) continues to feel the fallout from that reversal of fortune. But investors with a longer view may not want to write off this formerly high-flying duty-free store operator just yet, as Beijing works hard to build up China’s travel industry that is closely linked to such shopping. 

CTG Duty Free was once a top beneficiary of Hainan’s rise, as China developed the island off the South China coast into a tourist haven, including duty-free shopping for domestic travelers. Hainan experienced a huge business boom during the global pandemic as Beijing’s strict restrictions kept Chinese travelers at home, forcing them to look for domestic alternatives to favorite international destinations like Thailand and Malaysia. Full of warm, sandy beaches and shiny duty-free shops, Hainan made a great substitution in those years.

Now, with the pandemic more than two years in the past, Hainan has lost its luster. People can travel freely overseas again, so they no longer need to settle for a second-best option at home. And many domestic travelers are also looking for cheaper alternatives at home as China’s economy slows after years of rapid growth. In times like this, splurging on duty-free goods like imported cosmetics and liquors may seem like a luxury most people can live without.

Those shifts are all reflected in CTG Duty Free’s financial results. The company’s operating income fell about 10% year-on-year to 2.8 billion yuan ($391 million) in the first half of the year, according to its preliminary estimate released last Friday. Even worse, its net profit for the period dropped more than 20% to 259 million yuan, even though the company said its operational efficiency improved. The update was light on details, so it’s not clear what eroded the company’s bottom line so much. But its operating profit for the period fell 18%, far faster than its revenue decline, which seems to contradict its touted improvement in operational efficiency.

Regardless, CTG Duty Free’s underwhelming financials aren’t so surprising considering the broader trends we’ve mentioned, which are taking a toll on Hainan’s duty-free shopping market. Duty-free spending on the island is in the midst of a prolonged slump, including a drop of nearly 30% last year.  

CTG Duty Free relies quite heavily on Hainan. The company is the leading operator of duty-free stores on the island, and has massive outlets like one in the capital city of Haikou, the world’s largest, and in the beach resort haven of Sanya, the world’s second-largest. Last year, CTG Duty Free’s revenue from Hainan tumbled 27% year-on-year, far worse than the company’s overall 16% revenue decline. As that happened, the island’s contribution to the company’s total revenue fell to 51.4%, compared with 70% in 2023.

Beijing has been looking to spur duty-free spending in Hainan over the last decade as part of efforts to develop the region into a free trade port. In 2011, the government launched a pilot program allowing travelers leaving Hainan to purchase designated goods tax-free up to a designated spending limit. Policymakers have raised that cap significantly over the years to pump up sales, attracting a range of foreign luxury brands.

Shopping haven

The popularity of Hainan as a shopping haven is waning as China’s outbound tourism returns to pre-pandemic levels. Reflecting this, Trip.com (TCOM.US; 9961.HK), China’s largest online travel agency, reported that outbound hotel and air bookings in the first quarter of 2025 were at 120% of pre-pandemic levels in 2019.

International travel by Chinese tourists is bouncing back even as the country’s overall economy remains sluggish, with domestic consumption increasing only at a tepid pace despite an aggressive government push to encourage more spending. One explanation is that people would rather save money and spend it overseas than at home, especially after years of travel restrictions during the pandemic.

And to boost sales and clear inventory that is swelling amid lukewarm demand, merchants in other parts of China are offering deep discounts for items like wine, a popular duty-free product, which makes Hainan even less appealing.

As Hainan slumps, CTG Duty Free is attempting to capitalize on the recovery in outbound tourism. Last year, it won bids to operate 10 duty-free shops at airports and ports across China, including in the departure halls at Guangzhou Baiyun International Airport and Kunming Changshui International Airport. It has also opened stores overseas, including in Singapore and Japan, popular destinations for Chinese tourists.

In Hainan, CTG Duty Free is banking on its “duty-free+” strategy, which adds a range of experiential offerings, from tourism to wellness, to its retail offerings. But how effective it will be is questionable, given that traffic to the island is dwindling.

Despite those falling numbers, Beijing continues to make efforts to beef up traffic to the island. In the latest move, the government last week unveiled a plan to set up an independent customs zone within Hainan starting in December to lure tourists and businesses with an internationally competitive tax regime and relaxed visa requirements. Under the scheme, some 6,660 goods will be allowed to enter the province tariff-free, a big expansion from the current 1,900.

CTG Duty Free shares have risen since the company announced its preliminary first-half results last week, and now trade at a trailing price-to-earnings (P/E) ratio of 28. That’s higher than 18 for Trip.com and the 22 for H World Group (HTHT.US; 1179.HK), one of the country’s largest hotel operators.

This indicates that investors are still quite optimism on CTG Duty Free over the longer term. That may be sensible given that Beijing continues to look to develop Hainan. And even if Chinese travelers turn cold on Hainan as they head overseas, the company can still benefit from rising sales at international airports, which account for a growing share of its revenue.

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