CTGDF(601888)：STILL THE CROWN JEWEL AMONG REOPENING PLAYS

　　Owing to a weak but expected 4Q earnings, CTGDF’s recent share price has pulled back by 10%+ to its pre-reopening level. While lockdown risk has already behind us, we again see buying opportunity when earnings momentum, in our view, troughed, and subsequently picks up within 1H23E. Our call is further supported by channel check findings in which 1) YTD DF sales still tracking 20%+, 2) inelastic procurement demand from reseller given the prevailing logistic bottleneck and less favorable rebate policy with Korea DF, and 3) a very disciplined discount policy. We are buyers of CTGDF, and believe the stock would see a relief rally towards result season driven by management’s 2023 outlook and sentiment recovery towards the 5.1 Golden week.
　　We raise 2023E revenue by 9%, mainly driven by 1) a net 9% higher airport DF revenue of RMB16.6bn (offset by lower online revenue), which we assert offline foot traffic and spending per visitor to generally recover to c55% of 2019, and 2) Hainan offshore revenue of RMB62.3bn, in which we assume CTGDF to share 78% of Hainan government’s target of RMB80bn. These, however, were mitigated by a 0.2pp ramp up in opex ratio, and hence a muted net profits change. Our 2023E forecasts remain c25% below consensus.
　　4Q was below us but momentum has been normalizing. Although net　profits came in below us/ consensus, revenue has showed a 29% sequential QoQ improvement. While results details were not available, we expect the quarter’s GPM to show similar trend given 1) discounts has started to narrow from mid-Dec in view of better foot traffic upon the removal of social distancing policy, and 2) a rising contribution from accessories of which a higher GPM is supported by better pricing dynamics. Meanwhile, these were likely eroded by start-up costs induced by the new Haikou shopping mall.
　　Valuation. Our earnings is little changed. Our TP is still based on 50.0x end- 23E P/E, which represents its average since June 2020, when market started to re-rate the stock for a series of policy tailwind. We believe our methodology has appropriately priced-in the recent market sentiment about China’s gradual reopening progress.
　　Positive catalysts: domestic and overseas acquisition, sentiment recovery towards 5.1 Golden week.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。