Key points of investment

Incident: Romain Co., Ltd. released its semi-annual report for 2023: the company 2023H1 achieved operating income of 220 million yuan, an increase of 127.49% over the previous year; realized net profit of 36 million yuan, an increase of 85.78% over the previous year; realized net profit of 35 million yuan after deduction, an increase of 173.26% over the previous year. Among them, revenue for the quarter was 96 million yuan, an increase of 56.10% over the previous year; net profit of 23 million yuan, an increase of 37.99% over the previous year; net profit after deducting 23 million yuan, an increase of 86.96% over the previous year.

All businesses go hand in hand, driving high revenue and profit growth: In 2023H, several provinces issued night economy incentive policies to accelerate the construction of landmark nightlife experience zones. The company continued to give full play to the strong radiation capacity of the Shanghai and Chengdu metropolitan areas, further improve the market layout, actively expand new markets such as Shenzhen, Chongqing, Qingdao, Dalian, and Kaifeng, and reach strategic cooperation with many cities to promote the “design+construction+operation+continuous update” full-life cycle service model. At the same time, the company's digital cultural tourism and digital intelligence new energy sector businesses continued to advance, delivering multiple projects, keeping the company's overall revenue growing at a high rate.

Expense ratio and cash flow improved during the period: Due to a year-on-year decrease in pandemic disturbances, the company's expenses for the 2023H1 period were 45 million yuan, accounting for 22.13% of the revenue side, a year-on-year decrease of 19.29 pct, so the company's overall net interest rate remained at a good level. Furthermore, the company's net operating cash flow per share in 2023H1 was 0.38 yuan, an increase of 0.37 yuan over the previous year, and the cash flow improved.

Overall competitiveness is expected to continue to improve: We believe that with the expansion of the company's regions and fields, the company's B-side engineering business will continue to develop steadily, and in the future, as C-end wearable devices gradually mature, the company is expected to expand its C-side applications with leading VR/AR technology, seize opportunities in the C-side market, and further enhance the company's overall competitiveness and development ceiling. Furthermore, the steady development of the company's B-side business will also accumulate good traffic entry points for the company's C-side business, further enhancing the company's certainty.

Profit Forecast and Rating: Maintain profit forecasts. It is estimated that in 2023-2025, EPS will be 1.37/1.68/2.10 yuan, corresponding to the closing price of 21.79/17.72/14.23x PE on August 29, maintaining the “increase in holdings” rating.

Risk warning: Construction demand falls short of expectations, carry-over gross margin falls short of expectations, systemic risk.