The company's return results for 2023 are generally in line with the performance forecast. In 2023, the company achieved revenue of 9.635 billion yuan/ +50.15%, recovering 69% from 2019; achieving net profit of 194 million yuan, turning a year-on-year loss into a profit, recovering 34% from 2019; and deducting non-performance of 130 million yuan, reversing losses over the previous year, recovering 30% from 2019. The company's annual report results are basically in line with previous performance forecasts. The annual results have stabilized, mainly due to the gradual recovery of passenger flow in its scenic area business, drastic reduction in subsidies, and comprehensive effects such as depreciation.
The gradual recovery of scenic spots, increased costs and reduced subsidies further affected profit recovery. In 2023, visitors to Wuzhen Scenic Area recovered 84% compared to 2019, of which Dongzha/Xizha each recovered 59%/103% compared to 2019; Wuzhen revenue/profit of 17.84/284 million yuan, recovering 82%/35% from 2019. Performance recovery was lower than revenue. First, fixed costs were high and passenger flow was not fully restored; second, scenic area expansion, cost increases, including financial expenses, etc., increased compared to 2019; third, subsidies were drastically reduced (close to 200 million yuan in 2019, only 16 million yuan in 2023) and real estate depreciation Comprehensive impact of 50 million+. Gubei Water Town: The scenic area received a total of 1,523,600 visitors in 2023, achieving revenue of 735 million yuan, recovering 77% from 2019; operating performance turned a loss into a profit, but recovered only 2% from 2019, with the effects of cost increases and real estate revenue disturbances.
China Youth Expo Federation's revenue and net profit recovered 82%/63% from 2019, while Shanshui Hotel still lost money, further hampered by accrued impairment. Travel agency revenue is gradually recovering, and profits are expected to improve under cost control.
Continue to adjust and optimize the management of existing assets, and gradually explore the direction of extending the scenic area. In the past 2 years, the company sold 41% of Shanghai Shenguang Culture's shares and plans to sell 37% of the shares in the Puyuan Project, focusing on core business development.
At the same time, Wuzhen continued to expand its capacity over the past few years, and the number of guest rooms increased by more than 30% at the end of 2019. Since then, the main focus has been on climbing the newly opened hotel and improving rich content to promote profit recovery and growth; Gubei Water Town will be operated by Chen Xianghong's team in 2023 (see Global Travel News and other reports). In the future, the company expects to help growth through resource collaboration, continuous optimization of content and operation, and cultivate the listed companies' own scenic spot operation teams. At the same time, the company has gradually experimented with other scenic area extension projects in recent years. In the future, it will gradually accumulate through B-side and G-end projects to gradually build up the company's scenic area epitaxial output capacity and enhance midline growth.
Meanwhile, outbound travel is expected to recover further in 2024, and the company's main tourism business is expected to resume further growth.
Risk warning: macro-systemic risks; scenic spot operation, state-owned enterprise reform and integration may fall short of expectations, etc.
Investment proposal: Combining the gradual restoration of Gubei Water Town and cost increases and government subsidies or uncertainties under the expansion of Wuzhen, etc., the company's 2023-2025 EPS was reduced to 0.48/0.62/0.77 yuan (previously estimated to be 0.62/0.75 yuan in 2023, mainly assuming cautious assumptions about subsequent Wuzhen subsidies, adding 26 additional forecasts), corresponding to PE24/19/15x. The quality of the company's scenic spots is good, but considering that the company's capacity for independent operation and epitaxial export of scenic spots still needs to be gradually improved, the company's rating was downgraded to “increase holdings.”