The company released its report for the first quarter of 2024. The 24Q1 company achieved revenue of 336 million yuan, -0.43% year on year; realized net profit of 25 million yuan, -60.51% year over year; net profit after deducting non-return to mother was 0.2 billion yuan, -62.77% year on year. Due to multiple factors, Q1 performance was pressured. In the medium to long term, we are still optimistic about adding new high-speed trains, boosting passenger flow in scenic spots, and gradually improving the increase in contributions from various businesses to maintain the rating of increased holdings.

Key points to support ratings

Revenue side: Ticket revenue declined due to the free ticket policy. In 24Q1, Huangshan Scenic Area received a total of 827,200 visitors, compared to -2.12%; at the same time, Huangshan began implementing a free ticket policy in April '23, and a reduction policy began at the beginning of the year in '24, which led to a year-on-year decrease in ticket revenue for the scenic area.

Cost and expense side: Restaurant expansion added depreciation, and income tax deductions for the same period last year led to a lower base. 1) The company's Huicai sector expanded rapidly in 23, and in 23Q2, many new Huishang's hometown stores were opened. As a result, additional depreciation and amortization led to a year-on-year increase in operating costs; in 24Q1, the company's operating costs were 204 million yuan, +15.34% year-on-year, and it is expected that the stores will gradually contribute to the increase in climbing. 2) The company has not achieved profit in '22, and the losses generated can be partially exempted from taxes in 23Q1, resulting in a lower tax base in 23Q1; income tax expenses for 24Q1 were RMB 21.8 million, +82.61% over the same period last year.

Gross profit declined due to changes in the business structure, and the expense ratio remained basically the same over the same period last year. The gross margin of scenic spots is relatively high. The decline in Q1 ticket revenue led to changes in the business structure, and gross margin declined somewhat. 24Q1's gross margin was 39.47%, -8.28pct year over year. In terms of the period cost ratio, 24Q1 company's sales expense rate/management expense rate/R&D expense ratio were 2.30%/20.85%/0.16%, respectively, and +0.54/-0.41/+0.16pct, respectively.

Improving high-speed rail lines and continuing the free ticket campaign is expected to boost passenger flow in scenic spots. The Chihuang High Speed Rail was officially put into operation on April 26. After the opening of this line, it will connect Jiuhua Mountain, Huangshan Mountain, and Taiping Lake to form a “two mountains and one lake” golden tourist route. The newly built Huangshan West Railway Station will only take 30 minutes to Chizhou Station, which is expected to attract more high-quality customers. In addition, the Q2 main scenic area continues its “free discount” campaign, and visitors are free of charge every Wednesday. Improving the external transportation network and combining exemptions and discounts is expected to boost the number of visitors to scenic spots.

valuations

Considering the impact of multiple factors, the company's Q1 performance was under pressure. We adjusted the company's 24-26 EPS to 0.64/0.72/0.76 yuan, and the corresponding price-earnings ratio was 19.9/17.8/16.8 times, respectively. The free ticket policy will continue to help in the short term; in the medium to long term, external transportation routes are gradually being improved, and the company's various businesses can be expected to continue to improve and increase their holdings rating.

The main risks faced by ratings

There are risks such as the return of passenger flow falling short of expectations and the difficulty of implementing business integration.