Incident Overview
According to the 2023 annual report and 2024 quarterly report issued by Fengyuzhu, the company achieved operating income of 2,350 million yuan for the full year of 2023, an increase of 39.75% over the previous year, and realized net profit of 282.4 million yuan, an increase of 327.53% over the previous year. It is planned to distribute a cash dividend of 2 yuan (tax included) for every 10 shares. The company achieved revenue of 295 million yuan in the first quarter of 2024, a year-on-year decrease of 30.29%, and net profit to mother of -1.513,900 yuan.
Profitability rebounded and expense rates declined
In 2023, the company's profitability continued to recover, with an overall gross margin of 29.89%, up 2.76pct from the same period last year; by business, the gross margin of the urban digital experience space business was 34.11%, up 7.08pct from the same period last year, and the gross margin of the cultural and brand digital experience space business was 25.43%, down 0.65pct from the same period last year. The gross margin of the digital product and service business was 53.56%, down 0.31pct from the same period last year. In terms of cost ratio, the company's sales expenses rate in 2023 decreased by 0.73 pct to 5.34% compared to the same period last year, management expenses decreased by 1.04 pct to 4.40% compared to the same period last year, R&D expenses decreased by 0.90 pct to 3.37% compared to the same period last year, and the financial expenses ratio was -0.22%, a decrease of 0.06 pct compared to the same period last year.
New orders increased significantly. Fluctuations in first-quarter results had a limited impact in 2023, and the company's completed projects and operating income increased dramatically. By the end of 2023, the total amount of new orders signed by the company for the year was 2,649 billion yuan, an increase of 1,063 billion yuan over the previous year; the balance of on-hand orders was 4.489 billion yuan, laying the foundation for the transformation of the company's performance. The results for the first quarter of 2024 showed seasonal fluctuations, mainly due to (1) asset impairment provisions of $22 million in the first quarter; and (2) a decrease in the number of projects completed in the first quarter to confirm revenue. We judge that the current competitive situation for the company to obtain orders is good, there are sufficient orders in hand, and the fundamentals are running steadily. Fluctuations in performance in the first quarter did not affect our expectations for the full year and medium- to long-term business trends and profit conditions.
Actively explore the metaverse/AIGC. The policy supports the development of the cultural digital industry. According to the annual report, the company is seizing the good opportunities of the “Cultural Tourism Fever” and “Museum Fever” to establish the Fengyuzhu New Cultural Tourism Research Institute focusing on cultural tourism and experiential consumption research, comprehensively intervene in urban renewal scenarios, and vigorously expand the new digital cultural tourism business. The company actively lays out the metaverse field, continuously raises commercial barriers, and actively uses various AI model tools to develop integrated applications of AIGC and PGC in the fields of digital creativity and content creation. At the same time, it also lays out 3D digital design and systematic digital virtual content construction business, and implements application scenarios such as digital cultural tourism. Supported by multiple favorable policies around “cultural self-confidence,” the digital culture industry is expected to benefit significantly, and the early development of the industry can be expected. As a leader in the digital cultural and creative industry for exhibitions, Fengyuzhu is expected to directly benefit.
Investment advice: Maintaining a “buy” rating
Based on the company's latest financial report, we adjusted the forecast of the company's 2024-2026 revenue of 30.75/36.87/ (unpredicted) billion yuan to 27.41/31.34/35.57 billion yuan, adjusted the 2024-2026 net profit forecast of 4.42/5.40/ (unpredicted) billion yuan to 2.94/3.52/388 million yuan, and adjusted the EPS forecast of 0.74/0.91/ (unpredicted) yuan to 0.50/0.60/0.66 yuan, corresponding to April 29, 2024 The closing price of 11.28 yuan/share per day, PE was 23, 19, and 17 times, respectively. The company has benefited from the trend of cultural digitalization, high barriers to creative content production, and sufficient on-hand order reserves. We believe that the company's assets and business are high, the current valuation level is low, and it maintains a “buy” rating.
Risk warning
Risk of macroeconomic fluctuations; risk of loss of core technical personnel; risk of digital technology research and development.