The company released the 2023 results announcement and 2024 quarterly report on April 26. Revenue in 2023 was 630 million yuan, up 70.90% year on year; net profit to mother was 147 million yuan, up 623.9% year on year; net profit after deducting non-return to mother was 140 million yuan, up 1024.22% year on year; gross profit margin was 54.34%, up 18.10 pct year on year.

1Q24's revenue was 107 million yuan, a year-on-year decrease of 11.33%, and net profit to mother was 109 million yuan, a year-on-year decrease of 42.82%. The industry recovered rapidly in 2023, and the 1Q24 off-season was under pressure, mainly due to external market influence and lower revenue. We believe that profit growth is expected during the peak season.

In 2023, the scenic area business boomed, and composite products had significant advantages. ① Scenic area business revenue of 325 million yuan (+107.95%), gross profit margin 71.25% (+25.06pct). ② Hot spring business revenue of 47 million yuan (+47.71%), gross profit margin of 48.41% (+11.42pct). ③ Hotel business revenue of 207 million yuan (+45.24%), gross profit margin 29.88% (+5.05pct). ④ Water World's business revenue was 0.13 billion yuan (-9.50%), gross profit margin 6.98% (-8.65pct). ⑤ Travel agency business revenue of 91 million yuan (+25.71%), gross profit margin 7.20% (+2.70pct). The company's diversified products develop collaboratively, recover quickly, and have strong market competitiveness.

The cost rate was optimized in 2023, and future shareholder dividend returns were determined. The cost rate in 2023 was 20.13%, a year-on-year decrease of 11.75pct, a decrease of 6.64pct compared to 2019. ① The sales expense ratio decreased by 3.62 pct to 7.58% year over year, a decrease of 5.83 pct from 2019. ② The management fee rate decreased by 7.37pct to 13.69% year over year, 1.05pct lower than in 2019. ③ The financial expense ratio decreased by 0.76pct to -1.14% year over year, an increase of 0.24pct over 2019. Overall, the cost rate improved significantly compared to the same period in '19, and the company's operating efficiency was optimized. In '23, it is planned to distribute dividends of 5.36 yuan (tax included) to all shareholders for every 10 shares, increasing 4.5 shares by transferring capital from the Capital Provident Fund; the dividend rate is 2.9% (corresponding to the closing price of May 7, 2024). The cumulative profit distributed by the company in cash over the next three years is not less than 30% of the annual distribution profit achieved in the last three years.

One-stop destinations break the game, and reserve projects enable growth. The company uses “one-stop tourism” as its development strategy to achieve full time and space coverage by extending visitors' stay time. The company focuses on the development of integrated products and diversified market channels, weakens the influence of the off-season through scenic spots with complementary seasons, lays out the hotel business around scenic spots, and realizes collaborative development between products. With the support of the Liyang Municipal Government, the Nanshan Xiaozhai Phase II and Animal Kingdom projects are progressing steadily. They are expected to be completed in September 2024 and 2026, respectively, and are expected to achieve new business growth.

Profit forecasting and valuation. We expect the company's revenue to be 751 million yuan, 850 million yuan, and 953 million yuan respectively in 2024-26, up 19.2%, 13.1%, and 12.2% year-on-year; new projects are progressing steadily and are expected to further contribute to the increase in performance. In 2024-26, the company's net profit is expected to be 200 million yuan, 237 million yuan, and 255 million yuan respectively, up 35.9%, 18.8%, and 7.3% year-on-year, corresponding to EPS of 1.07 yuan, 1.27 yuan, and 1.37 yuan, respectively. Referring to comparable companies, give the company 20-25 times PE in 2024, calculate a reasonable value range of 21.40-26.75 yuan per share, and maintain a “superior to market” rating.

Risk warning: Consumer spending power recovery falls short of expectations, market competition intensifies, and offsite replication falls short of expectations.