Huatai Securities: CTG DUTY-FREE plans to acquire DFS Hong Kong and Macau, partnering with LVMH to strengthen collaborative layout, maintaining a "Buy" rating

Huatai Securities published a research report indicating that China Tourism Group Duty Free Corporation (01880.HK) recently announced that its wholly-owned subsidiary, China Duty Free International, intends to acquire 100% equity of DFS Cotai Limitada and related assets in Greater China held by DFS Singapore and DFS Hong Kong for no more than USD 395 million in cash. At the same time, after the transaction closes, China Duty Free will issue no more than 7.33 million H shares and 4.64 million H shares to LVMH's wholly-owned subsidiary Delphine SAS and the trustee of the Miller family trust, Shoppers Holdings HK, respectively, with a subscription price of HKD 77.21 per share, for a total consideration of up to HKD 924 million. After the issuance, the shareholding ratio of China Travel Service in China Duty Free will be reduced to 50.01%.

The firm believes that this acquisition has significant strategic significance for China Duty Free, including consolidating market position and scale, facilitating further integration of high-quality tourism retail networks, acquiring core benchmark store resources in Hong Kong and Macau, expanding local market share, and enhancing performance. It will improve synergy effects such as integrating the DFS brand and membership system, and is expected to leverage its mature operational experience to enhance efficiency, while building a platform for domestic products to go overseas through the Hong Kong and Macau window. The optimization of capital structure, by issuing H shares to LVMH subsidiaries and other strategic shareholders, aims to achieve strategic binding at the equity level, which is expected to deepen cooperation with LVMH, strengthen supply chain and brand advantages, and achieve mutual benefits.

Considering the accelerated recovery of offshore duty-free shopping after the border closure, Huatai Securities has raised the company's net profit attributable to shareholders for 2025 to 2027 to RMB 3.96 billion, RMB 5.241 billion, and RMB 6.183 billion, respectively, with increases of 8%, 10%, and 10%, corresponding to earnings per share of RMB 1.91, RMB 2.53, and RMB 2.99.

Huatai Securities stated that considering the previous policy benefits are gradually being realized in the company's profit, it has lowered the premium rate and raised the target price for China Duty Free (601888.SH) A shares to RMB 115.75 and the target price for Hong Kong shares to HKD 104.36, corresponding to 46 times and 38 times the price-to-earnings ratio for 2026; maintaining a "Buy" rating