Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 1.93 billion yuan, an increase of 320.8% over the previous year; due to the operating conditions of Huafang Group Co., Ltd., a joint venture in which the company participated, fell short of expectations, and the company's net profit to mother was -110 million yuan. Without considering the impact of this matter, the company's net profit to mother should be 830 million yuan, turning a loss into a profit over the previous year. Since various projects under the 2023Q1 company are still being prepared for gradual recovery after the epidemic, the revenue side and profit side grew significantly. 2024Q1 achieved operating income of 550 million yuan, an increase of 138.7% year on year; realized net profit of 250 million yuan, up 317.3% year on year; gross margin was 68.8%, up 17.7 percentage points year on year, and net interest rate was 45.6%, up 20.7 percentage points year on year.

In 2023, some of the company's projects did not start operations in time after the epidemic, resulting in core projects not recovering as well as in the same period in 2019. The company's subsidiary Hangzhou, Sanya, Lijiang and Jiuzhai achieved revenue of 650 million yuan, 190 million yuan, 320 million yuan and 90 million yuan respectively, recovering to 71.3%, 48.9%, and 96.6% in 2019. However, the Shanghai project, which reopened in July 2023, performed well, with revenue reaching 100 million yuan, surpassing the company's Jiuzhai and Zhangjiajie projects.

In 2023, both Songcheng Performing Arts and Flower Rooms have received unqualified audit reports. In April 2023, Huafang Group, an affiliate of the company, was frozen due to the investigation involving some accounts, and the listed company was issued a qualified audit opinion. Huafang Group has now paid the seizure pending settlement, all of Huafang Group's frozen fund accounts have been unfrozen, and annual reports have been disclosed normally. The company calculated an impairment loss of 860 million yuan on long-term equity investment for Huafang Group to reduce the risk of suppressing the company's performance.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 1.27 billion yuan, 16.0 billion yuan, and 1.87 billion yuan, respectively. The company is a leading domestic scenic spot. It is expanding nationwide under the “theme park+culture and performing arts” business model. Profitability is expected to continue to increase. The leading company will be given a certain premium, giving the company 28 times PE in 2024, corresponding to a target price of 13.44 yuan, and maintaining a “buy” rating.

Risk warning: Passenger flow recovery or falling short of expectations, scenic spot operations climbing or falling short of expectations, new project progress or falling short of expectations, increased risk of industry competition, risk of safety accidents, and risk of impairment of long-term equity investment.