Haiqi Group released its semi-annual report for the year 23:23H1 achieved revenue of 383 million yuan/ +5.8%, return home - 46 million yuan/ -41.9%, mainly because the new passenger transport business and car service business are still in the cultivation period and have not yet achieved economies of scale, while the contraction of traditional line passenger transport business is hampered; 23Q2 has revenue of 192 million yuan/ +12.7%, and Gimu - 014 million yuan/ +11.4%, net profit margin of 14.06% /-1.0pct, achieved a net profit margin of 14.06% /-1.0pct. 62% /+2.1pct.

By business: 1) 23H1's transportation revenue was 239 million yuan, of which the public bus model achieved revenue of 166 million yuan, accounting for 69%, and the responsible business model achieved revenue of 74 million yuan, accounting for about 31%. The company built a comprehensive passenger transport service system with collaborative development of multiple modes of transportation to promote changes in traditional passenger transportation models; 2) The automobile service sector sold 33.73 million litres of fuel, and achieved charging pile sales of 0.5 billion yuan/+44%, and automobile sales of 67 million yuan; 3) The commercial operation sector completed Qiongzhong Bus Station, Tunchang Bus Station, Haikou The space layout of the East Bus Station is adjusted. It is estimated that after the adjustment, annual rental revenue will be increased by about 104 million yuan, and 23H1 will achieve rent revenue of 30 million/ +4%.

Please resume the restructuring review. The injection process is expected to speed up: in May '23, the restructuring was approved by the Hainan Provincial State-owned Assets Administration Commission; in June '23, the company's application was suspended due to financial data nearing expiration. Currently, the company has applied to the Shanghai Stock Exchange to resume the review with the update of relevant materials. It is still to be approved by the Shanghai Stock Exchange and registered by the Securities Regulatory Commission. It is expected that the injection progress will still be the core catalyst for the company's current stock price. Continued attention is recommended.

The restructuring plan was adjusted in April: It is proposed to use 4,080 billion yuan to purchase Sea Travel Tax Exemption from Hainan Travel Investment, of which the share consideration is 3,468 billion yuan (313 million shares issued to Hainan Travel Investment at 1,109 yuan/share), cash consideration is 612 million yuan, and the capital increase will not exceed 1.4 billion yuan. It is expected that after all transactions are completed, Travel Investment will hold 43.81% of Haiqi and Haiqi will hold 100% of the shares in Hainan Travel Investment. Sea travel tax exemption is expected to achieve revenue of 50.45, 61.31, and 7.417 billion yuan in 23-25, and promised net profit of 198, 326 million yuan, and 480 million yuan. If calculated based on performance commitments, maximum share capital issuance, and the market value of the original business of 3 billion dollars, the current stock price corresponds to 46, 28, and 19 times the implied PE valuation for the 23-25 year tax exempt business, respectively.

Sea Travel Duty Free's profitability increased significantly: 1) Judging from financial data, Sea Travel Duty Free achieved revenue and net profit of 2,076 million yuan and 105 million yuan respectively, with a gross profit margin of 19.2% and a net interest rate of 5.1%, of which duty-free revenue was 1,913 billion yuan, gross profit margin of 18.7%; 2) Judging from the category structure, ① Online: perfumery/electronic products accounted for 70%/30%, gross margin 21%/2%; ② offline: perfumery accounted for 67%, gross profit margin of 31.5% Ratio 10%/7% /4 %/ 6%, gross margin, respectively, 26%/32%/36%/14%; 3) Judging from procurement capacity, the proportion of purchases from Duty-free Sea Travel to Lagardère in '22 was -9pct. As of June '23, it had introduced 1,033 brands and established direct procurement relationships with 716 brands including Montblanc and Piaget. Procurement capacity continues to increase, which is expected to help improve passenger flow appeal and profitability.

Accelerate the taxable commercial layout and get out of Hainan: 1) Further grasp the advantages of Hainan, Huating Ole is located in Sanya CBD. The distance from the Sea Travel Duty Free City is less than 1 km, and the renovation will be completed in September 23. The current investment progress is about 90%, which is expected to be a good complement to the duty-free business. The company expects the Huating Project to achieve revenue of 0.37, 1.23, and 195 million yuan respectively in 23-25, contributing net profit of -0.46, -0.07 billion yuan; 2) Sea Travel Duty Free was newly positioned to establish a holding subsidiary, Guilin Sea Travel, holding 51% of the shares A retail complex integrating shopping, dining and entertainment.

Investment suggestions: The company's acquisition of Sea Travel is progressing in an orderly manner. We are optimistic about the duty-free growth potential of Sea Travel. After integration, it is expected to inject new momentum into the company's development. Without considering tax exemption for sea travel, we expect the company's net profit to be -0.66, 0.31 million yuan, and 39 million yuan respectively in 2023-2025. Sea travel duty-free relies on the Hainan State-owned Assets Administration Commission, which enjoys strong resource endowments and core management innovation in business philosophy. It is expected that resources will be integrated after the acquisition. As the outlying islands duty-free dividend continues to be released, we expect sales and profit margins to rise. We expect the company to enjoy greater performance flexibility.

Risk warning: progress in restructuring matters falls short of expectations; policy risks; increased market competition, etc.