Cathay Haitong: Policy benefits boost service consumption; traditional consumption patterns improve

Guotai Junan released a research report stating that ongoing policy catalysts are driving up the prosperity of travel chains and service consumption. Some traditional consumer sectors are experiencing improved dynamics; after the new tax regulations on investment gold, the cost for enterprises to purchase investment gold bars has increased; the expansion of duty-free categories is enhancing high-end brands; and the scale of action education is accelerating. Additionally, the new consumption sector continues to show high prosperity, with emotional value and experiential consumption rapidly realizing commercial value; the commercialization of consumer technology products and services is accelerating; undervalued high-dividend stocks still possess significant allocation value at this stage.

Guotai Junan’s main points are as follows:

Ongoing policy catalysts are driving up the prosperity of travel chains and service consumption.

1. Fiscal subsidies are focused on bottom-line universal services: childcare/elderly care/healthcare/education, which will release disposable income and reduce precautionary savings. 2) The main policy approach on the demand side is to provide innovative consumption scenarios and release more leisure time. The comprehensive promotion of spring and autumn vacations for primary and secondary school students, along with the gradual implementation of paid staggered vacations, is marginally boosting the prosperity of travel chains. Among them: scenic spots: prosperity is rising, new projects, and assetization is accelerating. Hotels: prosperity is rising, supply is stable, and individual stocks are improving. 3) In other service consumption: the education sector has rigid demand, and there is ample room for expansion in domestic high schools. Demand for vocational education and skills training is increasing. After policy increases, high school education is expanding. Dining: demand is stabilizing and recovering, with cost-driven price increases. Tea drinks: slow reduction of takeaway subsidies, with category expansion becoming a focus for same-store sales.

Some traditional consumption sectors are seeing improved dynamics.

1. After the new tax regulations on investment gold, the cost for enterprises to purchase investment gold bars has increased. Member enterprises of the Shanghai Gold Exchange purchase gold directly from the exchange and sell it through direct retail without an increase in procurement costs; Caibai Co., Ltd.'s investment gold business model is clearly benefiting. 2) Zhuhai duty-free: the category continues to expand to include Apple phones, gold, over-the-counter drugs, and domestic trend products, making duty-free gold more price competitive. 3) China Duty-Free Group: equity cooperation with LVMH further enhances its bargaining power and scarcity in high-end brand resources. The price advantage of standardized and highly comparable categories like mobile phones and gold is creating new traffic entry points. 4) Action education: its own scale is accelerating expansion, with the hundred school plan advancing to capture the market: the first year has exceeded expectations, with the first year of the five-year hundred school plan originally planning to add five branches, but actually completing ten; an additional fifteen branches are planned for 2026.

New consumption continues to show high prosperity, with consumer technology and traditional retail undergoing rapid transformation.

1. Emotional value and experiential consumption are rapidly realizing commercial value. New retail has become a clear trend in the development of offline formats. China’s trendy toy IP industry is still in a high growth phase, with leading IPs breaking through from crowd + region + scenario, and new IPs validating the platform value of leading enterprises through continued popularity. 2) The commercialization of consumer technology products and services is accelerating; hardware represented by AI glasses and new traffic entry points and service forms represented by Agents are rapidly increasing their penetration rates, which may impact the existing profit distribution structure of the industry chain. Products like nars are quickly achieving market penetration, with expectations for applications in more fields. The application ideas for cultivated diamonds in several high-end manufacturing fields are broadening, with commercialization yet to be breakthrough. 3) The traditional retail industry chain is transitioning from deep distribution to efficient retail, with enhanced channel bargaining power. Emerging formats such as snack shops, hard discount retail, and community stores are rapidly expanding, creating investment opportunities. 4) Undervalued high-dividend stocks still possess significant allocation value at this stage.

Investment suggestions and recommended targets.

1. Continue to recommend travel and tourism: hotels (recommended: Huazhu Group-S, Shoulu Hotel, Jinjiang Hotels, focus on Atour), scenic spots (recommended: Jiuhua Tourism, Santai Cableway, Huangshan Tourism, Three Gorges Tourism, Emei Mountain). 2) Significant improvement in the competitive landscape, recommended targets: Caibai Co., Ltd., Action Education, Zhuhai Duty-Free Group, China Duty-Free Group, Huatu Shanding. 3) New consumption continues to show high prosperity: Laopu Gold, Miniso. 4) Consumer technology: Ugreen Technology, KANETEC Optical, etc. 5) Traditional retail continues to adjust: Guoquan, Jiangsu Guotai, Sumida, Bubugao, Jiajia Yue. Other stock opportunities recommended: Haidilao, Guming.

Risk warnings: 1) Uncertainty regarding the increase in residents’ disposable income and consumption willingness; 2) The impact of intensified competition on profits; 3) Risks and uncertainties related to the overseas market, regulation, and trade policies.