The tourism market recovered, and performance recovered rapidly. The company achieved operating income of 1,929 billion yuan in '23, +141.21% year on year, and net profit to mother of 423 million yuan, +424.29% year over year. Thanks to the recovery and continued steady improvement of the domestic tourism market, Huangshan Scenic Area received a total of 4.5746 million visitors in '23, +227.48%; of these, ropeways and cable cars carried 9.5061 million visitors, +207.69% over the same period last year. By business, the ropeway and cable car business achieved revenue of 700 million yuan, +208.2% year on year, hotel business revenue of 460 million yuan, +106.8% year on year, and scenic spot business revenue of 265 million yuan, +221.9% year on year.

Profitability is restored, and cost rate control is continuously controlled. Thanks to the recovery in passenger flow, the company's overall gross margin rebounded sharply at the same time, reaching 54.02% in '23, +33.67pct. In terms of expense ratios, the annual sales/management/finance expense ratios were 2.67%/18.57%/-0.07%, respectively, -3.39pct/-21.47pct/+0.03pc, respectively. Although revenue recovered rapidly, the company's expenses were properly controlled, and the expense ratio dropped significantly. Due to the recovery in gross margin and cost ratio control, the net profit margin reached 21.92% in '23, +38.42pct compared to the same period last year.

The construction of Dahuangshan has set sail, and the company is expected to benefit in the long term. Recently, the “Dahuangshan World-Class Leisure, Vacation and Health Tourism Destination Construction Promotion Conference” was held. The construction of Mount Huangshan is a major decision and arrangement made by the Anhui Provincial Committee and provincial government.

According to the “Action Plan for the Construction of a World-Class Leisure, Vacation and Health Tourism Destination in Dahuangshan”, by 2033, the gross domestic product of Dahuangshan will reach 1.4 billion yuan, receive more than 670 million domestic visitors, and more than 790 billion yuan in tourism revenue. Statistics from the Anhui Provincial Department of Culture and Tourism show that in 2023, the four cities of Dahuangshan received 270 million domestic visitors and achieved domestic tourism revenue of 285.75 billion yuan. According to the action plan, the number of tourists and tourism revenue in the Greater Huangshan region will more than double by 2033. On December 27, 2023, the Hangzhou-Chang high-speed railway line was completed, and the status of Huangshan as a hub was further enhanced. On March 26 of this year, the Chihuang High Speed Rail was put into trial operation for the first time. The high-speed rail can bring more visitors to high-quality scenic spots such as Huangshan Mountain, Mount Jiuhua, and Taiping Lake, which will help improve the quality development of tourism cooperation in Dahuangshan, covering the entire four provincial municipalities of Huangshan, Chizhou, Anqing, and Xuancheng. In the long run, with policy resource support and the strengthening of high-speed rail routes, Huangshan tourism is expected to open up space for long-term development and continue to benefit.

As the recovery in the travel market exceeded expectations and the return in passenger flow exceeded expectations, we raised our revenue and gross margin forecast. We expect the company's EPS to be 0.67/0.72/0.76 yuan for 24-26 (0.54/0.58 yuan for 24-25 years), maintaining a “buy” rating based on comparable companies' PE 21 times in 24 years, corresponding to a target price of 14.07 yuan.

Risk warning

Natural disaster risk; risk of ticket price reduction; risk of new projects falling short of expectations, etc.