The results in the first three quarters were lower than expected.

Huangshan Tourism announced its results for the first three quarters: operating income was 1.32 billion yuan, up 6.7% from the same period last year; net profit attributed to the parent company was 340 million yuan, up 5.0% from the same period last year, corresponding to 0.46 yuan per share. In the third quarter, the single-quarter income was 590 million yuan, an increase of 17.7% over the same period last year, and the net profit was 160 million yuan, an increase of 2.9% over the same period last year. The performance was slightly lower than expected.

Passenger flow in scenic spots fell by about 10% in the third quarter, mainly due to the high base in the same period last year (Huangshan launched ticket-free activities for Hangzhou people during the G20).

Trend of development

The reform is progressing steadily and looking forward to rising abruptly based on accumulated strength: although the overall performance this year is not outstanding, the new management of the company continues to promote internal reform. We believe that Huangshan Tourism is the leader in the reform of local scenic spots in China: 1) incentive reform: the company achieved a breakthrough in the incentive system for the first time, set up "winning performance awards" for senior executives, linked executive bonuses to excess profits, and enhanced management motivation. And at the level of newly established subsidiaries, adopt a more flexible market-oriented incentive system; 2) Marketing innovation: the company continues to launch marketing activities such as "99 trips to Huangshan in 9 provinces and 9 cities" and "ticket-free for citizens of Anhui Province". Pull off-season passenger flow growth; in October, the company signed an agreement with Huangshan Airport to increase the proportion of long-distance tourists brought by the airport through performance incentives. The company expects to increase the number of long-distance passengers by 100000 in the first year. 3) extension acquisition: the acquisition of Hongcun and Taiping Lake projects is under way and is expected to be completed within this year, becoming a new driving force for the company's growth. 4) disposal of assets: the company has completed the sale of Yuping Real Estate Company and the subsequent plan to sell the equity of Huaan Securities, focusing its funds and energy on the main tourism industry. 5) Cooperation: the company has signed strategic cooperation agreements with a number of external institutions, such as Huanyuan Capital, Jingyu Culture, Shanghai National Institute of Accounting, Jiangxi University of Finance and Economics, and so on.

Looking forward to the opening of high-speed rail. The Hangzhou-Huangshan high-speed railway will soon be opened in 2018, which will greatly shorten the time from the Yangtze River Delta to Huangshan Scenic spot and bring qualitative changes to the development of the scenic spot.

Profit forecast

Taking into account the slightly lower-than-expected results in the first three quarters, we have lowered our earnings per share forecasts for 2017 and 2018 by 8 per cent and 5 per cent respectively from RMB0.54 and Rmb0.67 to Rmb0.50 and Rmb0.64 respectively.

Valuation and suggestion

At present, the company's share price corresponds to a price-to-earnings ratio of 25 times 2018. We maintain the recommended rating for Huangshan tourism Aamp B shares, but cut the A share price by 1.48% to 19.93 yuan and B share price by 4.6% to US $1.84, corresponding to a price-to-earnings ratio of 30 times earnings.

Risk

Bad weather and so on affect passenger flow; the progress of the new project is not as expected.