The ticket price is reduced and landed on the ground, and continue to be optimistic that the opening of high-speed rail will bring an increase in the number of tourists.

Conclusions and suggestions:

Event: the company announced that the ticket price of Huangshan Scenic spot in peak season has been reduced from 230 yuan / person to 190 yuan / person (no adjustment in off-season price), a decrease of 17.4%. The new ticket price will be implemented from September 28, 2018. This time, the ticket price adjustment is relatively large, which will have a certain negative impact on the company's garden development business income, but we believe that as the garden development business accounts for a relatively small proportion, the impact of ticket price adjustment on the overall performance can be controlled. In addition, the Hangzhou-Huangshan high-speed railway is about to open, which is expected to become a strong boost to Huangshan passenger flow, and the increase in tourists may offset the adverse impact of ticket price reduction.

At present, the ticket price of Huangshan Scenic spot is 230 yuan per person in the peak season, 150 yuan per person in the off-season, March-November in the peak season, and December to February in the off-season. This price adjustment will affect ticket revenue from October to November 2018 and peak season revenue in 2019 (9 months). As only the face value of the pipeline is adjusted, the group purchase price of the pipeline has not been adjusted, so the actual unit price is expected to fall by less than 17%. In addition, in 2017, the company's garden development business income (that is, ticket income, which needs to be deducted from Huangshan management committee, price adjustment fund and heritage protection fund) reached 233 million, accounting for 13% of the business income. combined with the declining trend of the company's landscape development business in recent years (18% in 2013), the impact of ticket price reduction on the company is controllable, regardless of the changes in tourist volume in the second half of the year. Overall net profit is expected to fall 1.3 per cent year-on-year in 2018 (3.8 per cent year-on-year) and 5 per cent year-on-year in 2019 (ticket revenue is down 7 per cent).

The Hangzhou-yellow high-speed railway is about to open, and the number of tourists is expected to rebound in the coming year: according to news materials, the Hangzhou-yellow high-speed railway has entered the stage of joint survey and trial, and is expected to be opened by the end of the year. According to historical experience, the opening of the high-speed railway will greatly promote the growth of passenger flow in the scenic spot. Taking 2014-2015 as an example, the Beijing-Fuzhou high-speed railway and the Hefu high-speed railway were opened in July and June of that year, respectively, increasing the number of visitors to the mountains by 12% in 2014 and 11% in the second half of 2015. The Yangtze River Delta is the largest source of tourists to Huangshan except Anhui Province, accounting for about 30% of tourists. Hangzhou-Yellow High-speed Railway will greatly reduce the time required from major cities in the Yangtze River Delta to Huangshan Scenic spot. Hangzhou, Shanghai and Nanjing to Huangshan are 1.5 hours, 2.5 hours and 2 hours respectively. Tourists in the Yangtze River Delta are expected to increase rapidly over the weekend next year. On the other hand, due to the frequent occurrence of extreme bad weather in the first half of this year, the passenger flow in Huangshan Scenic area was greatly affected, down 10% from the same period last year, or 1.4814 million person-times. Assuming that the passenger flow in the second half of the year is the same as that of last year, the passenger flow for the whole year will also be reduced by about 5%. With the opening of a low base plus high-speed rail and the stimulation of relatively low ticket prices, the number of tourists is expected to rebound quickly in 2019, and the negative impact of price cuts on performance is expected to be eliminated. Assuming that the number of tourists falls by 5% in 2018, it is estimated that if the number of tourists increases by about 13% year on year in 2019, the revenue from landscape development business will be the same as in 2017.

The linkage of various businesses, the overall performance is good: this price adjustment does not involve other business in the scenic spot, after the ticket price adjustment, the increment of tourists is expected to increase other business income, thus the overall performance of the company is good. Take the ropeway business (revenue accounts for about 28% in 2017 and gross profit margin is about 85%). In 2017, the ropeway receives about twice as many tourists as the number of tourists entering the mountain. The current ropeway price is 80-100 yuan in peak season and 65-80 yuan in off-season. The increase in tourist revenue caused by the opening of high-speed rail is expected to lead to rapid growth of ropeway business revenue. In addition, the company promotes extension projects, and in the future, "one mountain, one water, one village and one grotto" will work together to gradually transform into a leisure scenic spot, which is beneficial to the long-term development of the company.

Profit forecast: the company reduced its holdings of 8 million shares of Huaan Securities in the first quarter, resulting in an investment income of 45 million. Regardless of the subsequent continuous reduction of its holdings of Huaan Securities (currently holding 82 million shares, the holding cost is about 0.32 yuan / share), the company is expected to achieve net profit of 410 million yuan and 470 million yuan in 2018 and 2019, respectively, with an EPS of 0.55 yuan and 0.63 yuan respectively, and the current share price corresponds to 19 times and 17 times of PE respectively. We are optimistic about the positive effects of the opening of high-speed rail and maintain the buying rating.

Risk hint: extreme weather occurs frequently, tourist growth falls short of expectations, and force majeure worsens the natural endowment of the scenic spot.