The Zhitong Finance app learned that CITIC Securities released a research report stating that it maintained the “increase in holdings” rating of Haichang Ocean Park (02255), with a target price of HK$1.3. The company's 23H1 losses narrowed sharply due to the recovery in passenger flow after the epidemic and good cost control. Among them, the Shanghai project performed particularly well; the boutique aquarium project progressed steadily, and the IP business continued to expand. In the short term, the strong passenger flow performance during the summer season is expected to support the company's performance in the second half of the year, and the opening of the first phase of Zhengzhou Park is imminent, and a good start is expected during the National Day. In the medium to long term, the successive operation of the reserve projects Zhengzhou Park Phase II, Shanghai Park Phase II, and Beijing projects will continue to inject growth momentum into the company, and the memorandum of cooperation signed with Saudi Arabia lays the foundation for overseas expansion. In addition, asset-light projects such as boutique aquariums and new IP consumer businesses are expected to usher in leapfrog development.

The report's main points are as follows:

Passenger traffic has picked up markedly, and losses have narrowed sharply.

The company's 23H1 achieved revenue of 749 million yuan/ +190.5%, net profit of -89 million yuan (22H1 was -539 million yuan), and adjusted EBITDA was 231 million yuan (22H1 was -165 million yuan). The improvement in performance was mainly due to the recovery of the company's passenger flow in the context of the post-epidemic cultural tourism market recovery. The comprehensive gross margin of 23H1 company is 27.1% (22H1 is -55.1%, 19H1 is 36.5%). Due to the high operating leverage of the company's main business, revenue recovery led to a sharp recovery in gross margin; in the first half of the year, the company strengthened cost control, and the absolute value of various expenses and cost rates were clearly optimized. Among them, the sales expense ratio was 3.1% /- 73pcts (sales expenses of 23 million yuan/ -13.7%), management expense ratio of 25.2%/- 54.1 pcts (administrative expenses: 189 million yuan/ -7.7%), financial expense ratio 20.0% /- 39.7 pcts (financial expenses of 150 million yuan/ -2.7%); Under good revenue recovery and refined operations, 23H1 Company's adjusted Ebitdamargin recovered to 30.9% /+95.1 pcts, and net loss from the parent company narrowed sharply.

The revenue structure of the park continues to be optimized, and operations during the peak summer season have gone one step further.

The 23H1 Park operation business achieved revenue of 698 million yuan/ +189.1%, of which tickets/food and drinks/goods/park amusement fees/rental/hotel operating revenue accounted for 50.2%/15.8%/8.8%/10.7%/2.1%/12.3%/12.3% respectively (19H1 was 69.3%/12.3%/4.5%/5.4%/5.3%/5.3%/3.3%, respectively). Compared with before the pandemic, the share of non-ticket revenue increased by 19.1pcts, showing rich consumption scenarios and continuous improvement in tourist experience driven by IP Secondary consumption has increased dramatically. The number of entrants/turnover of the 23H1 Park business recovered to 112.4%/112.2% in the same period in 2019 according to a comparable caliber, with Shanghai Park leading the recovery as the flagship project (23H1 entrances/revenue recovered to 129.7%/120.1% of 19H1 respectively). The bank determined that per capita consumption had not fully recovered, mainly due to a drop in effective ticket prices due to strong promotions. According to the company announcement, the total number of park entrances/revenue in the park business in July recovered to 124.4%/126.2% in the same period in 2019 on a comparable basis, and the number of entrants/revenue in Shanghai Park recovered to 132.1%/131.2% in the same period in 2019. Given the strong passenger flow performance in July, the bank judged that 23Q3 park business recovery is expected to increase further.

The asset-light layout is progressing steadily, and the IP business continues to expand.

The revenue of 23H1 cultural tourism services and solutions was 51.13 million yuan/ +211.3%. The restoration of passenger flow in post-epidemic projects combined with the implementation of incremental projects contributed to a significant increase in revenue. In terms of boutique aquariums, 23H1's total revenue is about 35.1 million yuan, and the monthly revenue for July is about 15 million yuan; as of August 27, 2023, the company has operated 23 boutique aquariums, and there are still about 30 local aquariums in the cooperation negotiation stage, and more than 10 are in the contract stage; the company's first children's ice and snow center project landed in Shenzhen at the end of April, marking the implementation of a new product line. The gross margin of the project has been corrected for 3 months. It is expected that off-site expansion will begin after the business model is straightened. IP operations and new consumer business continue to advance smoothly. 23H1 has successively launched popular IP projects such as Ultraman theme hotels, Ultraman theme pavilions, and Navigator theme pavilions in Shanghai Park, Dalian Discovery Kingdom, and Chengdu Happy Valley Scenic Area. Currently, the company continues to discuss potential cooperation with many top IP holders and actively develop its own IP. The bank judges that the increasingly rich IP matrix is conducive to improving the attractiveness and level of elimination of the company's park scene.

The Zhengzhou project is about to open, and the strategic cooperation is in Beijing.

According to the company's official WeChat account, the first phase of the Zhengzhou project will be grandly launched on September 28, and pre-sale tickets will begin on September 10 through multiple channels. Phase 1 and 2 of the Zhengzhou project will include many highlights such as the world's first multi-story carousel, the world's tallest revolving tower, the tallest ferris wheel in the Central Plains region, and the only 360-degree marine animal show in China. It will effectively fill the gap in large-scale marine-themed tourism products in the Central Plains region. The National Day holiday is expected to have a good start in passenger flow. The company expects that the annual revenue of the first phase of the Zhengzhou project is expected to exceed 700 million yuan in the future, and that the annual revenue contribution of the second phase of the project after maturing will exceed 1 billion yuan. In addition, the company announced on September 4, 2023, that it signed a strategic cooperation agreement with the People's Government of Tongzhou District of Beijing to jointly promote the implementation of the “Beijing Haichang Ocean Park” project in the sub-center cultural tourism area. The project will form a strong linkage with projects such as Universal Studios within the tourist area to promote passenger flow gathering. The bank speculates that the project cooperation model or the asset-light model similar to the Shanghai Park Phase II project (partner funding, company responsibility for operation) will form a new driving engine for the company's future growth.

Risk factors: Weak macroeconomy affects tourist consumption demand; park traffic and secondary consumption growth fell short of expectations; asset-light business expansion fell short of expectations; IP business development fell short of expectations; new projects started later than expected.