This report is read as follows:

The company's performance is in the previous forecast period, but the momentum of recovery appears in July and August, and the growth rate under the future light asset expansion and international IP addition is expected.

Summary:

In the short term, the repair of the epidemic situation, the increase in the proportion of second sales in the park in the medium term, and the expansion of the asset model and the improvement of governance structure in the long term. The net profit forecast for 2022-2024 is-3.6 billion yuan.

Maintain the target price of 7.4 yuan, about HK $9.1, and maintain the overweight rating.

Performance summary: affected by the epidemic and the divestiture of some parks at the end of last year, 2022H1 achieved a revenue of 260 million yuan /-80.5%, a net profit of-540 million yuan, an increase of 95% over the same period last year, and a net profit of-460 million yuan after adjustment. Because the decline in revenue was not enough to cover costs, the gross loss rate in the first half of the year was 55.1%, compared with 37.3% in the same period last year; the sales rate was 10.3%/+2.8pct, and the management rate was 79.3% and 54%.

The park business has been affected by the epidemic, but the recovery momentum has been shown. The park operation business was-72.9% to 240 million yuan compared with the same period last year, of which the proportion of consumption in the park increased to 37.3%, and secondary sales increased significantly. The first-half business days of the projects in Shanghai and Sanya affected by the epidemic were 97 and 148 days respectively, compared with 181 and 181 days in the same period last year. However, the rebound momentum was good in July and August. The monthly ticket sales reached about 74% of the total in the first half of the year, and the turnover of the entire park sector was about 140 million yuan. The revenue from cultural and travel services and solutions business was 1642 yuan /-31%, mainly due to the lack of project delivery under the epidemic, and the decline in Haichang Aquarium / Discovery Hall revenue. It is estimated that more than 20 aquariums will be managed and operated by the end of the year.

IP authorizes cooperation to introduce a new profit model. The company cooperates with Pulse Culture and is expected to cooperate with its well-known IP such as Barbie, Little Ma Polly, Pig Page and so on to create new business type. The theme entertainment area that has previously partnered with Altman IP has already opened in Shanghai. With the introduction of Altman IP, the average daily attendance of the Shanghai Park will reach about 20,000 on the weekend of August 2022. In the future, the first Altman Hotel Theme in the country will also be unveiled in the Shanghai Park.

Risk tips: repeated epidemic situation, project schedule is not as expected, competition intensified and so on.