Incident: Xiangyuan Cultural Tourism released its 2023 annual report. In the first half of 2023, the company achieved operating income of 277 million yuan, an increase of 78.48% over the previous year; net profit attributed to the mother was 56 million yuan, turning a loss into a profit; net profit of 54 million yuan after deducting non-attributable net profit of 54 million yuan, an increase of 1911.41% over the previous year. In the second quarter of 2023, the company achieved operating income of 145 million yuan, a year-on-year increase of 36.95%, and net profit of 31 million yuan, an increase of 667.86% over the previous year; net profit of non-attributable income was 31 million yuan, an increase of 1736.81% over the previous year.

The cultural tourism business is recovering rapidly, and the landscape of scenic spots continues to expand. Revenue side: The sharp increase in revenue was mainly due to the increase in revenue from commercial services and digital operations. 1) Scenic area transportation business: In the first half of 2023, Zhangjiajie Bailong Tiantian achieved revenue of 111.4571 million yuan, the Tuojiang cruise in the ancient city of Phoenix achieved revenue of 185.608 million yuan, Zhangjiajie Huanglongdong cruise, scenic bus and voice explanation achieved revenue of 20136,600 yuan, and Qiyun Mountain ropeway, bamboo raft and scenic area transportation vehicles achieved revenue of 1,1537,200 yuan. Revenue has all reached or exceeded the same period in 2019. 2) Cultural tourism integration and continuous innovation: In the first half of 2023, the company adhered to the “cultural IP+tourism+technology” development model, carried out diversified integration and innovation experiments with tourist destination resources, and created an innovative and innovative experience of innovative and innovative cultural tourism. 3) Resort layout: In August 2023, the company completed the acquisition of shares in Bifengxia in Ya'an, Sichuan. At the same time, it carried out asset replacement, adding two major scenic hotels in Qiyunshan and Huangshan, as well as supporting services, and two new business segments in the tea business. 4) Animation business: In the first half of 2023, the company earned revenue through original animated movie box office accounts, animated film and series production, and animated film and television content management. On the cost side: In the first half of 2023, the company's main business gross margin was 50.99%, an increase of 9.54 pct; the company's sales expenses ratio was 2.80%, a year-on-year decrease of 1.38 pct; the R&D expenses rate was 1.41%, a year-on-year decrease of 0.36 pct; and the management expense ratio was 10.26%, a year-on-year decrease of 8.61 pct.

The animation business is hard at work, and cultural tourism is integrated, innovative and developed. 1) The animation business is growing steadily: On the one hand, it is actively experimenting with IP creation and leading animated online drama projects; at the same time, it is promoting the optimization of R&D processes and upgrading the production system. Currently, it has an IP matrix of animated movies, more than 1,200 anime copyright images, mung beans, etc., and has established a mature “content+channel” business model. 2) Strategic asset restructuring: The company has made every effort to promote the restructuring of strategic major assets, formed a business pattern of collaborative development of “tourism assets, animation, film and television, and digital technology”, and achieved a perfect strategic transformation.

3) Digital technology empowers cultural tourism integration: The company fully promotes the collaborative development of digital culture business and tourism asset business, explores the construction of a characteristic cultural tourism industry model with “cultural IP+tourism+technology” as the core, and digital products such as the “Local Sound Tour” IP brand, uses digital technology to create a new cultural tourism business format, and further enhance the tourism service experience and platform effect.

Profit forecast: The company's cultural tourism asset restructuring is progressing smoothly, and digital technology continues to create a new cultural tourism business format, which is expected to open up the revenue ceiling. We maintain our profit forecast. We expect the company's net profit to be 1.53/2.02/254 million yuan respectively for 2023-2025, and PE corresponding to the current stock price (August 25, 2023) will be 53.2/40.2/32.0 times, respectively, maintaining the “increase in holdings” rating.

Risk Alerts: Macro and policy risks, business development risks, talent and management investment risks, etc.