China Galaxy released a research report on October 08 that gave the social service industry a recommended (maintain) rating.
Sector performance: In September, the social service industry rose or fell by -3.7%, lagging behind the CSI 300 index by 1.7pct, ranking 26th among all 31 industries. Among them, the rise and fall of each sub-sector are: tourism and scenic spots (-1.7%), hotel and catering (-2.2%), professional services (-3.6%), education (-7.3%).
Key Announcements & Events: (1) 826 million domestic tourist trips during the Mid-Autumn Festival and National Day holidays / +71.3% year-on-year, recovering to 104% in the same period of 19; (2) Trial operation of Sanya Phoenix Airport Duty Free Shop Phase II in September; (3) Haidilao first push the hot pot brand "Hi Lao hot pot", the main cost performance.
Key event comments: How to view the Mid-Autumn Festival 11 Golden week tourism data? The double holiday tourist number and income have reached a record high, but due to the impact of compensatory demand decline and outbound travel diversion, the recovery rate of tourist number fell significantly compared with the May Day. We believe that the end of the double festival marks that the domestic tourism market has returned to normal, and the future investment opportunities in the tourism sector mainly focus on three main investment lines: (1) optimistic that the short-term recovery rate still has room to improve, and the long-term online rate, penetration rate and concentration increase the driving factors of the outbound sector, including OTA, gaming and outbound travel agencies; (2) The low base effect of domestic tourism is no longer, the future demand growth depends more on endogenous factors driven, we believe that the core is through product and model innovation iteration, the formation of high-quality supply to promote demand growth, recommend Dafeng Industry, Feng Shang culture, Tianmu Lake, 99 percent, it is recommended to pay attention to Santeropeway, Brands China, Dashi shares. (3) The pro-cyclical section recommends paying attention to layout opportunities, and recommends China National Hotel, Jinjiang Hotel, Beijing Travel Hotel, and Junting Hotel.
Sector tracking: Duty-free: Golden Week duty-free sales improved month-on-month, DFS will open a tourism retail complex in Yalong Bay. Although the sales of outislands during the Golden Week have improved quarter-on-quarter, they are still weak compared with the Eleven holidays in 2021 and 2022, and the supply constraint + pressure on the consumption environment is still the main reason. The follow-up attention will be paid to the pull effect of the Hainan tourist season in the fourth quarter and the opening of the second phase of the Sanya International tax exemption on sales, as well as the potential catalytic landing of the tax exemption policy in the city. In the medium and long term, the duty-free market of Hainan Island is still the focus of the industry. LV's tourism retail operator DFS has announced that it will cooperate with Shenya Group to open Seven star luxury retail and leisure and entertainment resort in Sanya Yalong Bay, which may compete with China's Sanya Free project in the future, but considering that Hainan may be closer to the Singapore model after the closure of Hainan. We tend to think that state-funded duty-free operators will still maintain price advantages. Tourism: Reiterate the comparative advantages of the outbound tourism sector, and the focus of the domestic cursor is on growth and valuation matching. Considering the short-term recovery rate improvement space, and the medium - and long-term penetration rate and concentration increase trend, we are more optimistic about the outbound tourism sector with improvement momentum on both sides of supply and demand, and suggest paying attention to MGM China, Sands China Co., LTD., Galaxy Entertainment, CTRIP Group-S, Utour Travel. Domestic tourism due to the base pressure in the first quarter of next year, it is necessary to optimize the increase of the project after the epidemic, the traffic has improved, and the valuation has the safety margin target, and recommend Dafeng Industry, Fengshan Culture, Dafeng Industry, Sante ropeway, and Tianmu Lake. In addition, continue to be optimistic about the high prosperity of the display board block, recommend Miao exhibition, recommend to pay attention to Lansheng shares. Hotels: Leisure travel demand is returning to normal, focusing on a pick-up in business travel demand after improving economic expectations. Golden Week hotel booking demand is strong, high-end hotel demand is stronger than low-end, subsequent price increases or continuity. After the domestic travel market returns to normal, the repair slope of leisure travel may slow down, but with the policy combination introduced one after another, economic expectations may improve, which is expected to drive the recovery of business travel demand, recommend Jinjiang Hotel, Beijing Travel Hotel, Junting Hotel. Catering: Focus on functional catering track. Golden Week food and beverage consumption growth is strong, short-term to the sector or have a boost, but combined with the current parity, rational consumption trend, we recommend to pay attention to both rigid demand + penetration has room to improve the fast food, coffee track, it is recommended to pay attention to Yum China, Dashi shares.
Risk alert: The risk of epidemic transmission; Macroeconomic downside risks.