Event: The company released its 2023 annual report. 1) In '23, the company achieved revenue of 799 million yuan/ +10.5% (compared with the same period in '19, same below), net profit of 227 million yuan/ +11.8%, net profit of 235 million yuan/ +15.7%; 2) 23Q4 achieved revenue of 157 million yuan/ -4.4%, net profit to mother of 16 million yuan/ -16.6%, net profit of 20 million yuan/ -16.9%. 3) Thanks to improved operations, the company's operating cash flow in '23 was 405 million yuan, an increase of $289 million over '22.
The tourism market has improved, and the number of visitors received has increased significantly. By business situation:
1) Ropeway business: The company's ropeway business achieved revenue of 387 million yuan in '23, +16.8% compared to '19.
The three ropeways received a total of 6.12 million visitors/ +28.1% (of which, the Yulong Snow Mountain Ropeway, Yunshanping Ropeway, and Yakniuping Ropeway each received 3.6 million visitors/ 2.58 million/ 380,000 visitors, +3%/+72%/+86% compared to 2019. As the number of visitors to the scenic area increases, medium/small ropeways accept the diversion of visitors. The gross profit margin of the ropeway business was 84.6%, +3.9 pct compared to 2019, or due to a decrease in depreciation costs, which further increased profitability.
2) Performance business: The company's performance business achieved revenue of 137 million yuan in '23, -22.8% compared with '19.
The impression is that Lijiang has a total of 739 shows/-10.7%, receiving 1.56 million visitors/ -16.1%. Attendance rates and customer unit prices have also declined compared to 2019, which may be due to increased competition in the local performance market. The gross profit margin of the performance business was 58.8%, -6.0 pct compared to 2019.
3) Hotel business: The company's hotel business achieved revenue of 188 million yuan in '23, +57.8% year on year 19; gross profit margin was 26%, -27.3 pct year on year 19, mainly due to the increase in hotel depreciation costs. Among them, Lijiang Hefu Hotel achieved revenue of 148 million yuan, an increase of 71.7%, and net profit of 3.68 million yuan; Diqing Shambhala Tourism Investment Co., Ltd. achieved operating income of 38 million yuan, an increase of 64.9%, and net profit of 24.22 million yuan.
The decline in gross margin was mainly affected by the business structure, with significant improvements on the cost side. On the gross profit side, the company's gross profit margin in '23 was 58.7%/compared to -8.4pct in '19, mainly due to the decline in gross margin of the hotel business, which increased from 16.5% to 23.5% in '19, affecting the overall gross profit margin. On the cost side, the sales/management/ finance expense ratios for 23 were 3.4%/15.4%/-0.6%, respectively, changing -6.2 pct/-3.4 pct/+0.6 pct from year 19, respectively. The overall cost rate showed a downward trend. Thanks to improvements on the cost side, the net interest rate returned to mother in '23 was 28.5%, +0.31pct compared to '19.
Active layout around the “Grand Shangri-La Ring Road”. In September '23, the company invested abroad to accelerate the development and construction of the Lugu Lake Mosuo Town project; in November, it cooperated with the Zhejiang Chamber of Commerce to invest in the development of Mosuo Town, cooperated with Yunnan Xinhua Bookstore to develop 5596 Leisure Street, and also cooperated with Ctrip Group to enrich the product line. The business scope covered northwest Yunnan, and gradually expanded to the whole province. Furthermore, the Lixiang Railway opened at the end of November 23, connecting Lijiang with attractions such as Shangri-La and Haba Snow Mountain, enhancing the tourist advantage of the scenic area. In the future, the company will still anchor high-end travel consumption and actively build the Shangri-La ecotourism circle.
The recovery in operations provided the basis for dividends, and cash dividends hit new highs in recent years. The company plans to distribute a cash dividend of 3.5 yuan (tax included) for every 10 shares, and a total cash dividend of 192 million yuan. The dividend payment rate is 85%, and the dividend rate is 3.7%, a record high in recent years.
Profit forecast and investment suggestions: 1) Improvement of the fundamentals of the Yunnan tourism market. 2) The company improves leisure and vacation products and focuses on expanding the leisure and vacation market with the Lugu Lake Mosuo Town Project. The project is expected to gradually produce benefits in the next 3-5 years. 3) At present, the company's Grand Shangri-La boutique small loop line layout has basically been completed, and “Hotel+Local Experience” high-end customized travel products have been launched to the market. We are optimistic about the potential release of tourism resources along the Grand Shangri-La Ring Road. It is estimated that in 2024-26, the company will achieve net profit of 2.61/2.87/305 million yuan. The closing price on March 13 corresponds to PE of 20/18/17 times, respectively.
Risk factors: Macroeconomic recovery falls short of expectations, market competition intensifies, and construction of new projects falls short of expectations.