Incident: Dafeng Industrial released its 2023 annual report and 2024 quarterly report. In 23, it achieved revenue/net profit attributable to mother/net profit of 19.4/100/80 million yuan, or -31.8%/-63.9% over the same period last year. Net cash flow from operating activities in '23 was $170 million, +$780 million year-on-year. 24Q1 achieved revenue/net profit attributable to mothers/net profit deducted from non-mother of $2.9/0.3 billion, or -13.1%/+58.8%/+75.5% year-on-year, and net cash flow from operating activities of $190 million, or +260 million yuan year-on-year.
The increase in gross margin in Q1 raised the level of profit, and PPP investment and operation improved cash flow: the company's gross profit margin in '23 was 25.0%, -4.9pcts; the sales/management/finance/R&D expenses ratio was 5.7%/11.3%/-5.3%/5.8%, +2.3/+4.8/-5.9/+1.2pcts, and the final net sales margin was 5.0%, -4.8 pcts year on year. The 24Q1 company's gross profit margin was 37.0%, +10.8pcts year on year, estimated mainly due to business structure optimization and a lower base for the same period last year; the sales/management/finance/R&D expenses ratio was 11.6%/18.9%/-2.5%/10.2%, +5.5/-0.6 pcts year over year, credit impairment loss of 31 million, +94% year on year, and final net sales margin was 10.8%, year on year +4.7 pcts. Furthermore, the net cash flow from 24Q1 operating activities was +260 million yuan year-on-year, which is estimated to be mainly due to the gradual entry of the company's PPP project into operation and the company's further strengthening of repayments.
Project commencement and delivery dragged down the main business, and cultural and sports tourism operations achieved high growth: in '23, the company achieved revenue of 13.9/23/110 million yuan, compared to -36.4%/-42.7%/-32.1%, gross margin of 23.5%/34.8%/5.1%, year-on-year, -5.7/-2.1/-20.9pcts. The decline in revenue was mainly due to insufficient new construction rates, and delivery progress of some projects was not as good as expected; among them, the large decline in gross margin of rail transit equipment was mainly due to an increase in the cost of developing and testing new sightseeing vehicle products. As well as a reduction in revenue dilution effects. Cultural and sports tourism operations achieved revenue of 180 million yuan, +125.7% year-on-year, mainly due to an increase in the number of theaters operated by the company.
The advantages of digital arts technology & culture and sports operations continue to strengthen, and the second performance growth curve is expected to be achieved: the company's digital art technology business model was iteratively upgraded in 23 years, and in-depth cooperation was reached with more than 100 global partners, including the world's top special effects company “WETA”; at the same time, important progress has been made in the application of artificial intelligence and various digital technologies to achieve effective improvement in creative production efficiency and quality. In terms of cultural and sports operations, “Tonight Gong Xixi” maintained normal performances throughout the year, achieving a breakthrough increase in the number of viewers in stages; the “Tonight” series was replicated and implemented in Nanxun Ancient Town, completing the transformation from a single project system to a long-term project operation model, extending the life cycle, and the second performance growth curve is expected to be achieved.
Profit forecast, valuation and rating: The company is a leading cultural, sports, technology and equipment enterprise. On the basis of a steady increase in the main business, the company is actively developing new businesses such as mathematical technology and cultural tourism operations, and is expected to create an advantage in the entire industry chain for integrated cultural, sports and tourism development. We basically maintain the company's 2024-2025 net profit forecast of 270/315 million yuan, adding 366 million yuan to the 2026 forecast, and maintaining a “gain” rating.
Risk warning: Industry sentiment continues to decline, raw material prices are rising, and new businesses are not progressing as fast as expected.