Incidents:
Song Cheng Entertainment released its 2023 annual report and 2024 quarterly report. The company's revenue in 2023 was 1,926 million yuan/ +321%/recovered to 74% in 2019, with a net profit loss of 110 million yuan to the mother after deducting a net profit loss of 88 million yuan from non-mother; excluding flower houses affected net profit of 829 million yuan to the mother in 2023/recovering to 117% in 2019. 2024Q1 achieved revenue of 550 million yuan/ +139%/recovered to 68% in 2019, net profit to mother of 255 million yuan/ +317%/recovered to 68% in 2019, and net profit of 249 million yuan/recovered to 69% in 2019.
Comment:
Mature projects picked up strongly, contributions from new projects increased, and live performing arts ushered in a full recovery. By project, the comparable stock projects in 2023 Hangzhai/Sanya/Lijiang/Guilin achieved live performing arts revenue of 6.55/1.92/3.22/190 million, contributing 34%/10%/17%/10%, respectively, to 71%/49%/97%/118% in 2019; the next new projects, Jiuzhai/Zhangjiajie/Xian/Shanghai, achieved revenue of 0.89/0.69/0.52/98 million respectively.
The gross margin of old projects has reached pre-pandemic levels, and new projects are still climbing. In 2023, the company's net return to mother interest rate was -6%, and after excluding the influence of Huafang, the net profit margin for the main business was 43%/+3 pct compared to the same period in 2019.
2024Q1's net profit margin was 45% /+19pct/flat compared to 2019Q1. By project, the company's overall gross margin of live performing arts in 2023 was 61.56%/10 pct compared to 2019; among them, the gross margin of performing arts for the Hangzhou/Lijiang/ Sanya/ Shanghai/ Jiuzhai/ Zhangjiajie/ Xi'an projects was 63%/79%/76%/-16%/60%/39%/-33%/-33%, respectively. The net interest rates of the project subsidiaries were 50%/61%/57%/15%/-117%, respectively.
Q1 Passenger flow is booming, and the popularity of the Guangdong project has remained high since it opened. According to the announcement on the official website of Songcheng Performing Arts, the total number of Q1 asset-heavy projects reached 172% of 2019. Holiday catalysis brought explosive growth. The total number of performances during the Spring Festival Golden Week was 251% of the same period in 2019, the total number of visitors received was 207% in the same period in 2019, and the total revenue was 189% in the same period in 2019.
Investment advice: The Huafang matter affected the basic resolution, and the company's annual report received a standard unqualified audit opinion.
Looking forward to growth, Songcheng's asset-heavy scenic spots were expanded and upgraded during the pandemic, greatly improving reception capacity during peak seasons and enriching the supply of products in the park. Customer orders and passenger flow have the potential to increase in both directions. The estimated net profit for 2024-2026 is $1,238/15.04/1,696 billion yuan, maintaining a “buy” rating.
Risk warning: The development of new projects fell short of expectations, and market competition intensified.