Who is the most tragic "China-headquartered" company? Many people might not be able to answer immediately. However, if you add the term "hundred-billion giant" before "China-headquartered," the answer becomes clear.
That's right, it's China Duty Free (601888.SH)!
How tragic exactly?
In February 2021, the share price of China Duty Free reached 401.28 yuan, enjoying a moment of unparalleled glory; over the following year, along with the adjustment of the overall market, the share price of China Duty Free was halved. However, although the share price fell significantly, the entire market was also in a dire situation, and it was acceptable at that time.
What truly led to despair was entering 2023.
Entering 2023, China Duty Free's share price fell for five consecutive months, showing an accelerating downward trend. In January, China Duty Free fell by 1.73%; in February and March, it fell by 6.93% and 7.26% respectively; in April and May, the monthly decline expanded to 12.15% and 15.51% respectively.
Over five months, China Duty Free's share price exhibited a "no limit down, but continuous fall" pattern, with more than 200,000 investors gradually becoming desperate in this "boiling frog" type of decline. As of May 17th, China Duty Free had fallen by 37.06% year-to-date, with the maximum drop exceeding 40%.
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Why is the trend of China Duty Free considered somewhat "peculiar"?
Let's start with the company's business.It is well known that China Duty Free (CDF) is a retail company primarily focused on duty-free sales, including categories such as tobacco, alcohol, fragrances, cosmetics, apparel, and electronic products. CDF is the fourth largest duty-free business operator globally and the leading player in the domestic market. In simple terms, CDF is a duty-free company that relies on a monopoly license to operate a traffic-based business.
Looking at the company's performance, in 2022, both the company's operating income and net profit saw a significant decline. In the first quarter of this year, the net profit was 2.301 billion yuan, a year-on-year decrease of 10.25%. However, the main reason for the decline in performance is the decrease in customer traffic due to the pandemic. It is important to note that the company did not incur losses over the three years of the pandemic, and upon examining the gross and net profit margins, it is found that they have not only not declined compared to 2022 but have actually slightly increased.
In April of this year, the passenger throughput of international flights at Pudong International Airport was 991,700, a month-on-month increase of 18.6%; the passenger throughput at Hongqiao International Airport was 170,600, a month-on-month increase of 566.4%, continuing the trend of recovery.
Thus, a surprising scenario has emerged.
As is well known, the relationship between Shanghai Airport (600009.SH) and CDF is akin to that of a "landlord" and a "tenant." In theory, the interests and demands of both parties should be aligned, and they both earn money from customer traffic. It would be logical to expect that in the post-pandemic era, with the rapid recovery of customer traffic, the market should anticipate a rebound in the duty-free business. However, judging by the stock performance, the expectations of the capital market seem to be completely opposite.
Moreover, the stock performance of the two companies is also entirely different. Up to now in 2023, the decline in Shanghai Airport's stock price has been 14.21%, while CDF's decline is close to 40%. Note that Shanghai Airport has been losing money for three consecutive years, while CDF is profitable.
As of the end of the first quarter of 2023, CDF had 233,100 shareholders, surpassing 200,000 for the first time, with a quarter-on-quarter increase of 17.5%. This means that during the decline, many small and medium-sized retail investors chose to bottom-fish and take over. Of course, they have also suffered significant losses.
However, if we are to talk about the greatest loss, it still belongs to the company's actual controller.
According to the introduction, the largest shareholder of the company is China Tourism, with the State Council's State-owned Assets Supervision and Administration Commission (SASAC) as the actual controller, holding a 50.3% stake. At the highest stock price, the market value of SASAC's shares once exceeded 410 billion yuan, but according to the current price, this figure is now only 140 billion yuan. This means that over the past two years, SASAC has lost 270 billion yuan.Although market value and assets are entirely different concepts, and fluctuations in stock prices are a normal occurrence, in the context of state-owned enterprise reform, stock prices are directly related to the reform of mixed ownership, long-term incentives for key employees, and especially the securitization of assets, which is crucial when it comes to introducing external shareholders. Moreover, a prolonged decline in stock prices can significantly lead to the company losing its ability to refinance, which is not conducive to the circulation of state-owned assets.
In this sense, there is no doubt that it is a loss of state-owned assets!
At present, it appears that this turning point has not yet emerged.