Core point of view: after the release of epidemic prevention and control, the company's performance showed high elasticity as scheduled. The company has better medium-and long-term profitability and growth, and considering the industry attributes and current policy trends, it is expected that the extreme policy risk is low. The valuation of PE in 2023 is only 14.4 times, so it is recommended to allocate it actively.

Raise earnings forecasts and maintain "buy" ratings. After the lifting of epidemic prevention and control, the company's operating conditions improved as scheduled, and we slightly adjusted our annual performance forecasts: revenue in 2023-2025 was 30.0,35.7 and 4.12 billion yuan respectively (previously expected to be 29.4,34.5 and 3.99 billion yuan in 2023-2024). Year-on-year growth of 36.6%, 19.1% and 15.4% The net profit of homing was 8.8,10.5 and 1.24 billion yuan (previously expected to be 8.7,10.3 and 1.19 billion yuan in 2023-2025), up 33.2%, 20.1% and 17.7% over the same period last year. Maintain a "buy" rating based on the company's fundamentals and valuation.

The travel restrictions of the epidemic ended, the company's performance was compensated as scheduled, and the profit side exceeded expectations. The company's 2023 H1 realized operating income of 1.52 billion yuan, an increase of 68.2% over the same period last year (33.5% growth based on 21H1) and a net profit of 4. 5%.

6.5 billion yuan, an increase of 78.3% over the same period last year (26.5% based on 21H1). Even excluding the base effect, the company's performance was significantly higher than in the past 21 years, with the profit side generating a 0. 5% dividend due to the expected dividend to the overseas parent company.

With an additional income tax of 5.2 billion, the increase in corporate profits will be even more significant after deducting this effect, with an increase of 97.5 per cent in pre-tax profits.

From the perspective of product structure, cemetery sales have risen in both volume and price. (1) Cemetery service: 2023H1 operating tomb revenue 11.

8.3 billion yuan, an increase of 84.3% over the same period last year, of which the number of tomb sales increased by 60.5%, and the unit price increased by 14.9%; comparable operating tomb revenue of 1.183 billion yuan, an increase of 84.3% over the same period last year, of which comparable tomb sales increased by 60.4%, comparable unit price increased by 14.9%. (2) Funeral services: the income was 220 million yuan, an increase of 36.2% over the same period last year, of which the number of bereavement families (households) increased by 20.2%, and the average consumption per household increased by 13.3%. The rebound in unit price was mainly affected by the epidemic and the resumption of growth of funeral services. (3) other businesses: revenue was 20 million yuan, down 8.7% from the same period last year.

From the perspective of regional structure, the proportion of business in Shanghai has rebounded, improving operating profit margins. 2023H1's business in Shanghai picked up significantly, with revenue accounting for 2021H1 and 2022H1 to improve 4.9pct and 11.8pct to 48.6%. The Shanghai cemetery is more mature and has a high pricing level, and the proportion of revenue in the region has increased significantly to improve the company's profit margin: the operating profit margin of the cemetery service has increased by 8.4pct to 62.3% compared with the same period last year, and the overall operating profit margin of the company has increased by 10.3pct to 55.4% compared with the same period last year.

The special business model brings higher competition barriers, and the company's performance is expected to maintain medium-and high-speed growth under the logic of endogenous and epitaxial development, and the current valuation is cost-effective. Endogenous aspect: the remaining area available for tomb sales reaches 2.6 million square meters (33000 square meters in 2022), the resource reserve is rich, and the unit price continues to rise. Extension: the epidemic may lead to the tight cash flow of some private enterprises, which will be conducive to the follow-up mergers and acquisitions of the company. Profits are expected to maintain a medium-to-high growth rate of 15-20% in the next 2-3 years, and the dividend rate will gradually increase. The company's current PE valuation is only 14.4 times (2023). Active layout is recommended.

Risk hints: (1) the risk of regulatory policy; (2) the risk that the progress of M & An is not as expected; (3) the risk of information lag; and (4) the risk of assuming that it does not meet expectations.