Conclusions and recommendations:
The company achieved total operating income of 260 million yuan in 1Q, an increase of 7.8% over the previous year, net profit of 23.57 million, a decrease of 69.77% over the previous year, net profit of 23.57 million after deduction, a decrease of 27% over the previous year, and the gross margin remained the same. The 1Q performance was unsatisfactory, but it was mainly affected by non-recurring profit and loss base period differences. Furthermore, the traffic dividend brought about by the opening of the high-speed rail is gradually being realized, hedging the negative impact of ticket price reductions. With the improvement of internal governance and the expansion of outreach, the company's medium- to long-term performance is improving.
The difference in the base period of non-recurring profit and loss affects profit: the company's 1Q revenue increased 7.8% year-on-year, and growth was steady, but net profit declined significantly, mainly due to investment income obtained from the disposal of Huaan Securities shares in 18Q1.
According to the announcement, the company will implement the new financial instrument guidelines on January 1, and the proceeds from the disposal of Huaan Securities will no longer be included in current profit and loss. For this reason, it is expected that the whole year will be affected by base period differences.
The sharp increase in sales expenses drove up the expense rate: the comprehensive cost rate for 1Q was 26.52%, up 0.58pct from the previous year. Among them, sales expenses increased by 53.8%, increasing the sales expense ratio by 2.63 pct. Influenced by the expansion of remote passenger traffic and increased marketing and publicity efforts. Furthermore, due to the increase in interest income, financial expenses dropped significantly, and the financial expense ratio decreased 1.06 pct year-on-year. Furthermore, the income tax rate for the reporting period was 31.3%, an increase of 3.5pct over the previous year. Mainly due to the increase in taxes paid, it also had an impact on current profits. However, we think this is mainly affected by seasonal tax confirmation. Looking at the whole year, the tax rate will remain stable.
The high-speed rail dividend is gradually being realized, and I am optimistic about the increase in passenger flow in the later stages: Huangshan received 591,700 passenger traffic in 19Q1, an increase of 6.34% over the previous year. Judging from the main holidays, passenger flow increased strongly (New Year's Day, Spring Festival, Qingming and Huangshan visitors were 26,000/ -16%, 126,200 million/ 2.39%, 678,00/ 11.44% on May day), indicating that the stimulating effect of high-speed rail on passenger flow in scenic spots gradually became apparent. Currently, ticket revenue accounts for less than 15%. When fees from other businesses are not adjusted, the increase in passenger flow will hedge against the impact of ticket price adjustments on the company's performance.
Looking at the long term, the company is currently in the transformation stage. Through the “one mountain, one water, one cave” extension, it is transforming from a traditional mountainous scenic spot to a leisure resort. As the content of the scenic area continues to be enriched, supporting facilities are improved, and internal and external integration will gradually improve future performance.
In summary, it is estimated that in 2019-2020, the company will achieve net profit of 416 million (YOY -28.65%) and 490 million (YOY +17.86%) respectively, net profit of 40 million (YOY +19%) and 480 million (YOY +19%) after deduction, EPS is 0.57 yuan and 0.67 yuan respectively, corresponding to PE 16 times and 14 times, respectively. We are still optimistic about the rebound in passenger traffic in Huangshan and the improvement of internal governance to maintain the purchase investment proposal.
Risk warning: Frequent extreme bad weather caused passenger flow growth to fall short of expectations, force majeure caused the natural endowment of scenic spots to deteriorate, and policies required further adjustments in corporate ticket, ropeway, hotel and other business charges
