Goldman Sachs adjusted its stance on China Tourism Group Duty Free Corp (1880:HK), moving the stock rating from Buy to Neutral and lowering the price target to HK$66.00 from the previous HK$72.00. The decision follows the company's release of its preliminary results for the first nine months of 2024, which showed significant declines in key financial metrics.
China Tourism Group Duty Free reported a 52% year-over-year drop in third-quarter net profit to Rmb638 million, marking a steep fall from Rmb2.3 billion in the first quarter and Rmb977 million in the second quarter of 2024. The nine-month net profit totaled Rmb3.9 billion, down 25% from the previous year, which is only 60% of Goldman Sachs' full-year forecast. Historically, the company's performance in the first nine months would typically reach between 78% to 88% of the full-year forecast.
The analyst noted that the third-quarter results were anticipated to be weak, citing the continued downturn in duty-free sales in Hainan and a sluggish recovery in per-shopper spending at airports during July and August. The results have trailed expectations, with the third quarter's performance contributing to an underwhelming cumulative profit for the year.
The revised price target is based on a modest potential upside of 9% to 23% over the next twelve months, as indicated by the new target prices of Rmb75 and HK$66, respectively. This potential gain is significantly lower than the average coverage potential upside of 33%.
Goldman Sachs' downgrade reflects a cautious outlook on China Tourism Group Duty Free's stock, given the softer-than-expected third-quarter results and the company's performance falling behind the usual trend for the first nine months of the fiscal year.
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