Incident: The company released its 2022 report and the first quarter report for 2023. It achieved revenue of 260 million yuan in 2022, a year-on-year decrease of 8.0%; Guimu's net profit was -76 million yuan; 2023Q1 achieved revenue of 92 million yuan in a single quarter, an increase of 71.3% over the previous year, and Guimu's net profit was 10 million yuan, an increase of 166.9% over the previous year.

Influenced by the general environment, the company's 2022 performance came under pressure, and a new digital sports business was laid out. 1) Stadium business: Affected by the general environment, each stadium operated by the company experienced a 3-6 month closure period in 2022. The stadium business was impacted. Revenue in 2022 reached 63 million yuan, a decrease of 3.1% over the previous year, and gross margin was 0.5%, a decrease of 19.6 percentage points over the previous year. 2) Sporting event business: The number of authorized event IPs and independent IPs operated by the company decreased to varying degrees in 2022, causing revenue growth to slow. 2022 revenue was 124 million yuan, up 12.5% year on year, gross margin was 29.1%, a decrease of 2.4 percentage points over the previous year. 3) Sports club business: 2022 revenue was $27 million, down 1.6% from the previous year, and gross margin was 20.4, down 9.7 percentage points from the previous year. 4) Marketing service business: 2022 revenue was 119 million yuan, an increase of 8.3% over the previous year, and gross margin was -8.1%, a decrease of 29.3 percentage points over the previous year. 5) Sports equipment manufacturing and sales business: Affected by the general environment, fewer go-karting stadiums were added across the country in 2022, and market demand weakened. 2022 revenue was 18 million yuan, a decrease of 38.5% over the previous year, and gross margin was 22.0%, a decrease of 11.0 percentage points over the previous year. 6) Digital sports business: Lay out a new business for the company, deeply integrate the participating subsidiary “Yuedong World”, and actively carry out digital transformation. In 2022, revenue was 01 million yuan, and gross margin was 43.2%.

The company's business is gradually on the right track, and the 2023Q1 profit level and period expense ratio have returned to the normal range. In the context of the liberalization of the epidemic prevention policy, 2023Q1's gross margin and net interest rate reached 42.8% and 28.4% respectively, up 25.9 percentage points and 51.1 percentage points respectively compared with the same period in 2022. The company's period expenses ratio was 18.8%, and the sales, management and financial expenses rates were 2.2%, 14.8%, and 1.9%, respectively, down 0.3, 24.1, and 1.0 percentage points from the previous year.

Actively promote the construction of national fitness platforms and use digital transformation to break the circle. Since 2021, the company has used “digital sports” services as an entry point, positioned digital fitness services for national fitness, focused on building a digital sports platform and industrial ecology, and laid out two major tracks for national fitness and physical education with the support of AIGC and VR technologies. Using the “Yuedong Circle” app to promote national fitness coverage, the 2022 platform matrix DAU was about 1.69 million, and there is plenty of room for development.

Profit forecasts and investment recommendations. The market demand for hosting sporting events was strong after the epidemic. It is expected that the company's business in various sectors will recover rapidly in the future. The net profit of returning to the mother in 2023-2025 will be 0.8, 120 million yuan, and 160 million yuan respectively. The company was given 50 times PE in 2023, corresponding to the target price of 26.00 yuan, covering the “hold” rating for the first time.

Risk warning: The risk that the industry will be affected by macroeconomic fluctuations, the risk of increased market competition, the risk that sporting event promotion rights cannot be extended or commercial royalties will rise sharply, and the risk that the growth rate of the sporting event business falls short of expectations.