Key Takeaways
BofA Securities cut its price target on China Duty Free Group to RMB85 from RMB95, lowering its 2026 earnings forecast by 10 percent after the travel retailer's first-quarter results missed the bank’s expectations.
"Duty-free sales growth may have peaked in 1Q, with limited room for re-rating," the bank said in a note, maintaining its Neutral rating on the company's A-shares (601888.SH).
The downgrade followed first-quarter results where core net profit of RMB2.3 billion, up 21 percent year-over-year, fell below the bank's forecast despite being in line with market consensus. While sales in the key Hainan market grew a strong 28 percent, total revenue of RMB16.9 billion was nearly flat, implying declines in airport and online sales channels.
The new RMB85 price target is based on a 35x price-to-earnings multiple for fiscal 2026, just above the stock's historical median of 34x. The move signals analyst caution over the travel retailer's growth trajectory after a strong post-pandemic rebound, questioning if momentum can be maintained.
Despite the top-line weakness outside of Hainan, China Duty Free's profitability metrics showed improvement in the first quarter. Gross margin improved by 0.6 percentage points year-over-year to 33.6 percent. The company also saw its core net margin expand by 2.2 percentage points to 13.8 percent, suggesting some success in cost management or product mix. However, the revenue slowdown in key segments appears to be the primary driver of the cautious analyst action.
The price target reduction suggests BofA Securities sees limited upside for the stock, putting pressure on the company to find new growth drivers beyond the Hainan recovery. Investors will now watch second-quarter sales data for signs of whether the slowdown in airport and online channels persists or if the company can reignite growth across its entire business.
This article is for informational purposes only and does not constitute investment advice.
