UBS: Raising the target price of China Free (01880) to HK$90.73 to accelerate Hainan offshore duty-free sales or become a profit catalyst

The Zhitong Finance App learned that Goldman Sachs released a research report saying that the increase in earnings per share for the next two years will be between 7% and 12%, because the bank believes that the worst period for offshore duty-free sales in Hainan has passed, and predicts that China's net profit from 2026 to 2027 will rise 34% year on year and continue to rise 21%, respectively, reversing the decline in 2024 and 25. UBS raised the target price of free H-shares in China from HK$71.2 to HK$90.73; reaffirming the “buy” rating.

Under the new Hainan offshore duty-free shopping policy, UBS has noticed a further expansion in the range of duty-free products and a wider customer base (cross-border travelers and Hainan residents), which means that proxy purchases, which contributed up to 35% of Hainan's offshore duty-free sales in 2021, may return (currently only 5%), and raised the Hainan offshore duty-free sales forecast for the next two years to 21% and 36%, respectively. It is expected that the optimized offshore duty-free shopping policy will drive the growth of China's free offshore duty-free sales in Hainan, but this factor has not yet been fully reflected in the market.

According to UBS, as the consumer base expands and purchasing returns, the year-on-year growth forecast for offshore duty-free sales in Hainan in the next two years will be raised from 5% and 10% to 27% and 23%, driving Hainan's offshore duty-free sales revenue contribution rate to 55% and 57% during the same period.