WANGFUJING GROUP CO. LTD.(600859)：AS AN OLD-BRAND RETAILING GROUP OF GENERAL DEPARTMENT STORES WFJ ENTERS NEW CHAPTER OF DEVELOPMENT WITH DUTY-FREE BUSINESS

As an old-brand retailing group of general department stores, Wangfujing (WFJ) has been granted license to develop duty-free business. Actual controlled by Beijing SASAC, WFJ principally engages in general merchandise retailing business and is listed under the commercial segment of Beijing Tourism Group. In 2020, WFJ was licensed to enter the duty-free market, developing dual business mode of taxable and duty-free goods. In Jan 2023, its first island duty-free store, WFJ International Duty-Free Port, opened for business.
While completing layout of its taxable business, WFJ establishes its distinctive duty- free business. Taxable business: operational performance is disturbed by the pandemic, while the merger of Beijing Capital Retailing Group (BCRG) consolidates its core market of North China. As per consolidated financials, the company realized revenues of Rmb11.5/12.8/8.5bn from 2020 to 2022Q1-Q3. WFJ has a comprehensive business layout, with department stores accounting for 50%+ of total revenue. Shopping centers and outlet stores are relatively prosperous. Sales share of North China area exceeds 50%. Duty-free business: full duty-free license was granted to WSJ and its first island duty-free project opened for business. WFJ is the only operator other than CDF that has a duty-free license for all categories. WFJ's CEO led the formation of duty-free team, constructed supply chain and channel system, and cooperated with 800+ brands worldwide, among which 130+ enter the duty-free channel for the first time. WFJ's first island duty-free store locates in Wanning, Hainan, with a distinctive duty-free business mode of tourism and shopping. A total construction area of 102,500 square meters is planned and scheduled to open in three phases, with the first phase currently under trial operation.
Entering travel retail market, WFJ is likely to thrive with advantageous customer traffic, large scale, and outstanding operation. 1) Advantageous customer traffic: WFJ department stores are landmarks with abundant customer traffic all over the country, and WFJ Duty Free Port is expected to attract high-end customers, with higher-than-average growth rate of overnight visitors in Wanning; 2) Large scale: WFJ Duty Free Port should account for 15.1% of Hainan's total island duty free operation area after full operation, becoming the largest duty-free project other than CDF's. We expect WFJ to quickly grow as the pillar of China’s duty-free industry with subsequent duty-free projects within the city and ports. 3) Outstanding operation: combination of taxable and duty-free business promotes WFJ's supply chain system, and the comprehensive membership system integrates the customer base. We expect WFJ to thrive in the travel retail market with upgrade of supply chain, customer traffic and customer experience.
Earnings Forecast & Rating: We forecast its net profit to be Rmb0.179/0.978/1.442bn in 2022-2024, corresponding to P/E at 179x/33x/22x. We initiate with the Outperform rating.
Risks: Lower-than-expected willingness of tourism and consumption resulted from pandemic resurgence, lower-than-expected performance of duty-free business, intensified competition.
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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。