China National Travel Service (601888) Tracking Report-Revisiting the Trend and Impact of Hainan’s Outlying Islands Tax Free Policy

China National Travel Service (601888) Tracking Report-Revisiting the Trend and Impact of Hainan’s Outlying Islands Tax Free Policy

Recently, high-level government officials frequently released signals to support the construction of Hainan Province into a free trade port.

In addition, on November 4, 2019, Caesars Tourism announced the establishment of Hainan Tongsheng Shijia Duty Free Group Co., Ltd. with its registered capital in Haikou.

Do these issues herald Hainan’s relaxation of the tax exemption policy for outlying islands and the further realization of “island-wide tax exemption”?

If the tax exemption policy is adjusted or the island-wide tax exemption is adjusted, will the monopoly and tax exempt income in Hainan be affected by the reorganization?

The market’s doubts about these issues have recently increased again, and the company has previously undergone significant adjustments.

In this regard, our comments are as follows: Hainan’s island-wide tax exemption is a long-term project, and even liberalization has more advantages than disadvantages.

1) In the current environment where all domestic sectors are generally open to the outside world, Hainan actively promotes the implementation of the island’s tax exemption from a local perspective, which is in line with the general trend, and the central government has also increased the opening of Hainan to a higher level, soIn terms of direction, “Taiwan-wide tax exemption” is the 北京桑拿洗浴保健 direction of Hainan’s active efforts.

However, in general, we believe that there will be many difficulties in the integration of tax-free integration across the island that need to be considered and resolved. At present, the operability is low, and it needs to be carried out gradually.

2) Even liberalize the island ‘s tax exemption and open the upper limit of the total scale of the benchmark Hong Kong and Hainan ‘s tourism retail market (expected benchmark 70 billion + vs. outlying island tax-free revenue volume of about 13 billion in 2019), which will also have a boost for China TravelEffect, based on its first-mover advantage and its accumulated procurement and resource advantages in recent years, it is not a problem to obtain a certain market share, and the maximum size of China Travel in the Hainan market will also be opened.

The relaxation of outlying island tax-exemption permits is possible, but if the relaxation is expected to have limited impact on China National Travel Service.

In the short to medium term, it is possible to relax the tax exemption permits for outlying islands, but Hainan ‘s best location has already been tax exempted by China. At present, the intervention of domestic tax-exempt business is far behind in terms of investment, procurement and operation capabilities.The results of the separate operations in Sanya and Haikou markets can be used as a reference.

In addition, while it is possible to release the island’s tax-free permit, the policy also has breakthrough constraints in terms of shopping quotas and starting points for postal tax.The possibility of impact is limited.

Risk factors: Slower-than-expected increase in gross profit margin; lower-than-expected tax exemption policy and airport bidding; lower-than-expected Haitang Bay project operation; risks of slower-than-expected progress in state-owned enterprise reform.

Investment suggestion: We believe the company expects a weak trend in the near future, mainly because of doubts about the impact of changes to the Hainan outlying tax exemption policy and subsequent island-wide tax exemption on China Travel, which has brought short-term emotional responses.

We believe that a policy game will exist, local governments will promote market liberalization, and the island ‘s tax exemption is in line with Hainan ‘s positioning, but one is that it will take a long time, and the other is that if it tries to succeed, China Travel will actually be the beneficiary.

The short-term cumulative fluctuations may bring long-term allocations. We recommend that you pay attention.

In the long run, China Exemption benefits from the opening of the tax-free market space under the background of attracting consumption and replacement. Currently, the profit forecast still contains potential increased flexibility. Contingent changes in Hainan’s policies will not constitute a substantial impact. The company is still worthy of configuration.Steady growth varieties, maintaining the company’s EPS forecast for 19-21 is 2.

41/2.

37/2.

RMB 74 and “Buy” rating.