The company released its report for the third quarter of 2023. 2023Q3 achieved operating income of 178 million yuan, a year-on-year increase of 15.04% and a month-on-month increase of 71.12%; net profit to mother of 51.613,600 yuan, a decrease of 17.90% year-on-year and an increase of 771.75% month-on-month; net profit after deduction of 45.203 million yuan, a year-on-year decrease of 27.89% and an increase of 700.33% month-on-month.

In the first three quarters of 2023, we achieved operating income of 433 million yuan, a year-on-year increase of 3.52%, net profit to mother of 121 million yuan, a year-on-year decrease of 7.52%, and net profit after deducting 113 million yuan, a year-on-year decrease of 12.52%.

Key points of investment:

The number of outdoor travelers increased dramatically in the third quarter. According to data from the State Railway Administration, in 2023Q3, railways across the country sent 1,163 million passengers, an increase of 18.43% over the previous month, an increase of 96.79% year-on-year, and an increase of 12.48% compared with 2019Q3. According to data from the Ministry of Commerce, the average daily passenger traffic on model pedestrian streets across the country increased by 87.4% compared to the previous year's holiday, and the average daily passenger traffic in key business districts in 36 large and medium-sized cities increased 1.6 times compared to the previous year's holiday. The number of domestic outdoor travelers increased dramatically in the third quarter, which had a positive impact on outdoor advertising media advertising.

Short-term losses in the big screen business affect profits. Up to now, the company has built and operated a number of outdoor naked eye 3D screens in the core business districts of Guangzhou, Taiyuan, Guiyang, Chengdu, Chongqing, and Beijing. However, the 3D high-definition large screen media business is in the early stages of business investment. According to the company's semi-annual report, although the gross margin of the outdoor large screen media business increased sharply by 341.99 pct over the same period last year, the gross margin was still -212.64%, which is in a state of loss. The 3D high-definition large screen business is putting growth pressure on the company's short-term profit side.

The gross margin increased significantly from month to month, and the cost ratio. 2023Q3's gross margin was 48.32%, up 21.04 pcts from month to month, down 7.96 pcts year on year; gross margin for the first three quarters was 44.14%, down 6.98 pcts year on year. As of September 30, 2023, the company's usage rights assets were 1,228 billion yuan, an increase of 84.22% over the beginning of the year, indicating that the company has more newly-signed and renewed high-speed rail station media and outdoor naked eye 3D high-definition large-screen media, which may have led to a large increase in media resource usage fees, affecting gross profit margin. Q3 The company's sales expense rate/management expense rate/R&D expense ratio were 16.96%/2.84%/1.86%, down 1.16 pct/0.29 pct/0.25pct year on year, and 13.97 pct/1.79 pct/0.68 pct, respectively.

The number of offline visitors increased dramatically during the Q4 holiday season, which is expected to continue to boost marketing demand. According to Ministry of Culture and Tourism data center estimates, the number of domestic travelers during the Mid-Autumn Festival and National Day holidays was 826 million, an increase of 71.3% year-on-year in terms of comparable caliber, 4.1% increase over 2019; achieved domestic tourism revenue of 753.43 billion yuan, an increase of 129.5% year-on-year according to comparable caliber, and 1.5% increase over 2019 according to comparable caliber. According to data from the Ministry of Commerce, in the first seven days of the holiday season, passenger traffic on the national model pedestrian street increased by 94.7% year on year, and passenger traffic in key business districts in 36 large and medium-sized cities increased 4% from 1 to 6. The number of outdoor visitors has increased dramatically or continues to drive an increase in demand for outdoor advertising.

Empower AI in digital content production. The company has made deep efforts in AI and other digital content production fields, using it to the outdoor naked eye 3D production process and independently produced and launched a number of naked eye 3D digital content blockbusters such as “Evolution Theory”, “Take a Breath”, and “Landing” to provide effective support for the development of the company's outdoor naked eye 3D large screen business.

Investment advice and profit forecast: Domestic railway passenger traffic continues to grow, which is expected to drive upstream customer advertising in favor of high-speed rail media and enhance the company's media business value. The company's outdoor naked eye 3D large screen business expands the coverage of the company's media resources and covers people, providing advertisers with more diverse marketing scenarios. Although the business lost money in the short term, it is expected to become the company's “second growth curve” in the future. Considering that the domestic consumer repair situation is lower than our expectations, the superposition company's 3D outdoor high-definition large screen business is still in the expansion stage, so the company's profit forecast was lowered accordingly. EPS is expected to be 0.68 yuan, 0.87 yuan, and 1.05 yuan respectively in 2023-2025. According to the closing price of 18.20 yuan on October 27, the corresponding PE is 26.66 times, 20.83 times, and 17.34 times, maintaining the “increase” investment rating.

Risk warning: The recovery in advertisers' advertising demand falls short of expectations; increased rent for media resource use; risk of repayment of accounts receivable; intensification of industry competition