Event: The company released its annual report for the year 23. In '23, we achieved revenue of 1,817 million yuan/yoy +129.1%, a recovery rate of 64.8%; net profit to mother - 197 million yuan, a sharp narrowing from the same period in '22; and adjusted EBITDA profit of 459 million yuan, a significant improvement from negative to positive in '22.

Various business segments continued to recover. (1) Park operation business: By the end of '23, the company owned and operated a total of 7 theme parks. The total number of visitors to its parks in '23 was about 9.29 million. Excluding the newly opened Zhengzhou Park, the total number of visitors increased by 101.9% compared to '22, and the recovery rate of 108.0% compared to '19. The total revenue of the park sector in '23 was 1.69 billion yuan/yoy +125.3%. Excluding the newly opened park in Zhengzhou, there was also a sharp increase of 118.6% compared to '22, and the recovery rate of 104.4% compared to '19. In terms of breakdown, in the park's operating business in '23, ticket revenue was 90 million yuan/yoy +159.2%, park consumption was 570 million yuan/yoy +104.7%, rent revenue was 0.3 million yuan/yoy +6.4%, and hotel revenue was 190 million yuan/yoy +92.6%. According to Euromonitor International data, the growth and recovery of the company's theme parks in 23 years far exceeds the average level of theme parks in China. (2) Cultural tourism services and solutions business: The product line for the Children's Ice and Snow Center project was also launched in Bao'an District of Shenzhen in April 23, with annual revenue of 90 million yuan and revenue of about 100 million yuan in January-January '24. As of March 17, '24, the company has operated 20 oceanariums rich in marine culture and urban parent-child experiences, and is currently still in negotiations with 10 boutique oceanarium offices; the children's ice and snow center project product line also landed in Bao'an District of Shenzhen in April 23 and generated positive cash flow in the same year. (3) IP operates a new consumer business: Currently, the company has obtained IP cooperation licenses for Altman's Altman series, One Piece King and Baby Shark, and will launch 4 Ultraman theme pavilions and 2 One Piece theme pavilions in 2023 to achieve IP commercialization. In the future, we will also continue to enrich our IP reserves and further operate our own IP to achieve a new IP+ business format.

The project reserves are rich, and there is plenty of room for growth. The company will continue to expand the breadth and depth of its business based on rich experience in cultural tourism operations. The Zhengzhou project opened at the end of September 23. Its 2-hour traffic circle can reach 450 million people, and the company expects the project's cash flow to be corrected in '24. The second phase of the project is also expected to open in '24, and the Tongjinqiao Haichang Penguin Resort is also expected to open. As the company's flagship project, the number of visitors to the Shanghai project increased 118.6% year on year, with a year-on-year recovery rate of 116.6% over 2019, and achieved a significant recovery. At the same time, the company plans to further promote the expansion of Shanghai Park and expand the second phase of the project through an asset-light model, which will cover elements such as hot spring hotels, ocean hotels, ocean exploration centers and characteristic hot springs. It is expected to open in '25. As the company's first project in the Beijing area, the Beijing Haichang Ocean Park project is currently in the design stage and is expected to open in 26-27. In addition, the Haichang Ocean Park project in the Kingdom of Saudi Arabia is expected to open in 2030. The company is rich in reserves for subsequent large-scale projects. Coupled with the optimization of the operation of existing cultural tourism projects, the acceleration of deep integration of IP and theme parks, commercialization opportunities for IP theme halls, and the export of local cultural tourism projects, etc., there is plenty of room for future growth.

Investment suggestion: With the rebound of the domestic cultural tourism market over the past 23 years, the company's overall business has recovered and achieved major improvements. The company's existing projects are in excellent quality, the reserve projects are rich and have considerable potential, and we are optimistic about the company's growth space. Based on this, we expect the company's net profit to be 0.3/1.6/280 million yuan in 2024-2026, maintaining a “buy” rating.

Risk warning: risk of macroeconomic fluctuations, risk of increased industry competition, risk of passenger flow recovery falling short of expectations, risk of operations and project construction falling short of expectations, etc.