Performance Overview: In 2023, the company achieved revenue of 2.35 billion yuan, a year-on-year increase of 39.75%; achieved net profit of 282 million yuan, an increase of 327.53% over the previous year; realized net profit without deduction of 215 million yuan, an increase of 604.12% over the previous year. In 2023, the company's urban digital experience space business achieved revenue of 844 million yuan, a year-on-year increase of 30.53%, a gross profit margin of 34.11%; the cultural and brand digital experience space business achieved revenue of 1,394 million yuan, an increase of 40.37% and a gross profit margin of 25.43%; and the digital products and services business achieved revenue of 112 million yuan, an increase of 167.23% year-on-year and a gross profit margin of 53.56%. With 2024Q1, the company achieved revenue of 295 million yuan, a year-on-year decrease of 30.29%; realized net profit attributable to mother of -15 million yuan; realized net profit deducted from non-return to mother of -0.15 million yuan.

Business performance has picked up rapidly, orders are abundant, and the expansion of the new digital cultural tourism business has been accelerated. In 2023, demand for the cultural tourism market and offline experience business picked up markedly. The company implemented the national cultural digitization strategy, expanded the new digital cultural tourism business, and promoted the release of backlog demand in the early stages and the execution of new projects. Completed projects and revenue increased dramatically in 2023 over the same period last year. The company seized the good opportunities of “cultural tourism fever” and “museum fever” and established the Fengyuzhu New Cultural Tourism Research Institute, which focuses on cultural tourism and experiential consumption research, to comprehensively intervene in urban renewal scenarios and expand the new digital cultural tourism business. In 2023, the total amount of new orders signed by the company was about 2,649 billion yuan, an increase of 1,063 billion yuan over the previous year; as of December 31, 2023, the company had an on-hand order balance of 4.489 billion yuan, and there were plenty of on-hand order reserves.

Integrate digital resources, break into urban renewal business scenarios, and create a national benchmark project. In 2023, the company will seize the opportunity of urban renewal, take the lead in integrating design, exhibition, architecture and digital resources, comprehensively intervene in cultural sites, historic protected buildings and historical and cultural districts, build a world-class museum with high quality, and help revitalize the century-old historical and cultural protection building “Yongan Storehouse”. At the same time, the company combined an innovative influencer traffic memory hall method to transform the old city government building in Hefei into the Hefei City Memory Hall. Furthermore, the company used the Hangzhou Asian Games as an opportunity to provide digital media content production services for the Hangzhou Asian Games and create multiple high-quality digital experience spaces. In 2023, the company's renovation projects contributed 16.14% of revenue.

It strengthens IP drainage and content operation capabilities, and has outstanding application capabilities for technologies such as AI human-computer interaction and VR/MR.

In 2023, the domestic cultural exhibition market continued to heat up, and a new offline VR cultural tourism experience model was activated. The company established the MR Research Institute to focus on spatial computing and VR/MR technology applications to explore immersive innovative experiences in the fields of cultural expo, cultural tourism, and exhibition. In 2023, the Quzhou Tianwang Tower Immersive Art Museum, the Tonglu Fangyu Kongxiangsu Cultural and Creative Complex, and the “Three-Body Immersive Art Exhibition” jointly launched by the company were selected for popular reviews and Douyin's local lifestyle list. The company has a large design team in the industry and diverse digital technology talents across borders, including digital creative and design planners, digital R&D, AI human-computer interaction, CGI visual effects, VR/AR, holographic imaging and other digital multimedia technology applications. Outstanding creative design capabilities and the level of application of digital multimedia technology can protect the effects of digital display and immersive experiences, and stimulate the company's potential for continuous business growth.

Profit forecast: In the process of digitalization of the national cultural industry, the company, as an industry leader, is expected to benefit from market expansion brought about by industrial expansion and development, and has potential for innovative business and new technology applications. The company's 2024Q1 performance is under pressure, and we lowered our profit forecast. We expect the company to achieve net profit of 4.18/5.07/595 billion yuan in 2024-2026, an increase of 48.2%/21.0%/17.4% year-on-year, corresponding to PE 17/14/12x, maintaining a “buy” rating.

Risk warning: New technology development falls short of expectations; industry competition intensifies.