The demand for compensation is obvious after the epidemic. In the first half of 2023, the income was 1.52 billion yuan (+ 68.2%), and the profit attributable to the owner was 460 million yuan (+ 78%). Among them, the income of cemetery / funeral / other services is 12.9 2.3pcts 2.2 / 20 million yuan respectively (+ 76.9% Universe 36.2% Universe 8.7%). The compensation of cemetery plate is the most obvious. The company's overall net profit rate is better than expected. The company intends to pay an interim dividend of HK9.06 cents per share, with a corresponding dividend payment rate of 41%. As the leader of the industry, the company has outstanding professional management ability and expansion advantages in the long run, and maintains a "buy" rating.

Demand compensation is obvious, leading to a significant improvement in profitability. After the epidemic, the demand was replenished as scheduled. 1H23's operating income was 1.52 billion yuan (+ 68.2%), the compensation rate was better than expected, and the owner should share the profit of 460 million yuan (+ 78%). From the perspective of business, the income of H1 cemetery service / funeral service / other services is RMB 2.87 billion respectively, which is + 76.9%, 36.2%, 8.7% and 84.4%, 14.7%, 1.3% respectively compared with the same period last year. The compensation of cemetery plate is the most obvious, which leads to an increase in the proportion of income contribution. On the cost side, the increase in revenue led to a significant decrease in employee costs under operating levers (18.0% maxim 5.2pcts), engineering costs (3.6% homemade 2.0pcts), depreciation and amortization (5.3% mai 3.3pcts). To sum up, the operating profit margin of H1 has greatly increased by 10.3pcts to 55.4% compared with the same period last year; the income tax rate has also increased by 7.0pcts to 32.4%, mainly because companies within the group pay about 51.6 million yuan in withholding income tax when paying dividends to overseas controlling shareholders step by step; and the company's net profit margin has also increased by 2.3pcts and 0.2pct to 38.4%.

The demand in the cemetery is compensated significantly, and the rebound in Shanghai's share leads to the improvement of customer unit price and profit margin. By June 30, 2023, the company has entered 47 cities in 20 provinces and municipalities (year-on-year + 1), and currently operates 34 cemeteries / year-on-year + 3, 32 funeral service facilities / year-on-year + 2. ① Cemetery Service: the accumulated and deferred funeral consumption demand has been rapidly released, the number of customers coming to the park has increased significantly, and the performance of operational tomb sales service has made up significantly. The revenue of 23H1 operating tombs is 1.18 billion yuan (+ 84.3%). Structurally, the unit price is + 14.9% and the number of tombs is + 60.5%. The revenue basically comes from comparable cemeteries, and the number of newly acquired or newly built graves is only 2 in the first half of the year. The price increase is due to comprehensive factors such as the improvement of product structure, the contribution of different cemeteries and the increase of value, especially the increase in the contribution of Shanghai cemeteries with a low base in the same period last year, while the average unit price of Shanghai cemeteries is significantly higher than the national average, so it has a significant boost to the price increase over the same period last year. The profit margin of Shanghai Cemetery is also higher than the national average, superimposed by the leverage effect of rising income, and the operating profit margin of the cemetery service sector has increased to 62.3% compared with the same period last year. ② funeral service: the income of 23H1 funeral service is 220 million yuan (+ 36.2%), which basically comes from comparable facilities, driven by the growth of service volume (+ 20.2%) and average price (+ 13.3%), among which the recovery of value-added services leads to a rebound in unit price. The operating profit margin of funeral service increased 7.6pcts to 20.9% compared with the same period last year. ③ other business: 23H1 income is 20 million yuan (- 8.7%), of which the revenue from providing professional design services to domestic cemeteries and funeral parlors (EPC) / cremator business income is 0.07 trillion yuan respectively. The company 23H1 signed 9272 living contracts (+ 18.4%), a record high.

The progress of extension has been restarted. According to the company's report, in the first half of the year, the company acquired 100% of the shares of Hongfu in Yan'an, a funeral integration project composed of operating cemeteries and funeral services, and the company's first strategic stronghold in Shaanxi Province. at present, 428 mu of land for funeral and interment construction has been obtained through bidding. The company and Shenyang Fuyuan have reached and signed a cooperation agreement, and the two sides will jointly set up a joint venture company in Shenyang to carry out funeral service related business. this project is the company's first government-enterprise cooperation funeral project in the northern region. it also represents the further improvement of the layout of the funeral industry chain in the northeast of the company. The construction and preparation projects of the company include Yan'an Cemetery Project in Shaanxi Province, Dalian Bay Cemetery Project and Hebei Zhuolu Project.

Risk factors: market expectations affect the risk of cemetery operation and service provision; "Funeral Management regulations" and other policy restrictions exceed the expected risk; the risk of intensified competition in the industry; company management business risk.

Earnings forecast, valuation and rating: we maintain the 2023-2024-EPS forecast of 0.38-0.45-0.52 for 2025, and the current price corresponding to 14-25 PE for 2023-25. Comparable company SCI (SCI.N) PE is 18X (2023E, Reuters consensus), corresponding to medium-and long-term profit growth is expected to be in single digits. We give the company 18 times PE in 2023, maintaining a "buy" rating corresponding to the target price of HK $7.40 at the current exchange rate.