The Board of Directors of China Tourism Group CDFG Co (CTG), the parent company of China Duty Free Group, unanimously voted on March 14 to invest in China National Service Corporation (CNSC), a subsidiary of Sinopharm, which operates a diverse array of airport, downtown and land border duty free stores in Mainland China, including in Sanya, Hainan province.
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The CTG Board agreed that the company will invest RMB 1.228 billion (USD 178.5 million) in the form of a non-public agreement (the relevant pricing is based on a filing by the State-owned Assets Supervision and Administration Commission of the State Council/SASAC) to participate in a CNSC capital increase.
After the completion of this transaction, the company will hold 49 percent equity in CNSC (this will not be included in the scope of the company’s consolidated statements).
Although CNSC figures will not be consolidated into CTG, the RMB 1.228 billion (USD 178.5 million) stake represents a telling increase in CDFG’s already powerful pre-dominant industry status both within China and worldwide. CDFG has been the world’s number one travel retailer by sales for the past three years, according to The Moodie Davitt Report’s sector benchmark annual rankings.
Founded in 1983, the Sinopharm-controlled (and therefore state-controlled) CNSC was China’s first company to be granted a duty free licence and today remains the country’s leading downtown travel retailer as well as operating airport, seaport and land border stores.
In a note, Orient Securities Company said the move will solve CNSC’s long-running procurement struggles and supply chain bottlenecks through the deployment of CDFG’s advanced management systems.
“We expect the integration to bring CDFG an incremental revenue of RMB 3-4 billion (USD 436-580 million) and net profit of RMB 150-200 million (USD 22-29 million based on a 49 percent share),” the company said.
Crucially, CDFG gains access to CNSC’s long-established post-arrivals downtown duty free shopping network. With Korea-style (i.e. pre-departure) downtown duty free shopping likely to be added to China’s travel retail landscape this year, CDFG will enjoy a dominant position in the overall downtown channel.
CNSC has downtown stores in 12 cities, including Beijing, Chongqing, Dalian, Hangzhou, Harbin, Hefei, Kunming, Nanchang, Nanjing, Qingdao, Shanghai and Zhengzhou. It also operates the CNSC Sanya International Duty Free Plaza in Hainan province, a business that has struggled since its late 2020 opening and which is certain to benefit from the new relationship. Additionally, CNSC runs airport (six), seaport (two), land border (five) and international (one) store operations.
CNSC also operates a near 1,800-square-metre, post-arrivals duty free store in Beijing FUN — an extraordinary two-phased commercial and cultural development just 100 metres away from Tiananmen Square and adjacent to the National Palace Museum, National Grand Theatre, National Museum and other renowned cultural institutions in Beijing.
Making a strong ‘buy’ recommendation, Orient Securities Company said the agreement will allow the integration of resources in Hainan and in airports, thus boosting CDFG’s market share. It will also lead to supply chain advantages and boost CDFG’s bargaining power with brands, the note said.
Source: The Moodie Davitt Report