Incident Overview

On April 25, the company released the 2023 Annual Report and the 2024 First Quarter Results Report. In 2023, the company achieved operating income, net profit attributable to mother, and net profit after deduction of RMB 2.35 billion, RMB 282 million, and RMB 215 million, respectively, with year-on-year increases of 39.75%, 327.53%, and 604.12%, respectively. Of these, 23Q4 achieved operating income, net profit to mother, and net profit without return to mother of 510 million yuan (yoy +25.98%), 73 million yuan (yoy +36.66%), and 69 million yuan (+56.28%). Profits were 295 million yuan (yoy -30.29%), -015 million yuan (yoy -134.03%), and -015 million yuan (-135.96%), respectively.

Analysis and judgment

The company implemented the national cultural digitization strategy, actively grasped opportunities for the full recovery of the cultural tourism market and offline experience economy, and completed projects and revenue increased dramatically. The company actively seizes historical opportunities for urban renewal, taking the lead in integrating design, art, exhibitions, architecture and digital resources, comprehensively intervening in cultural sites, industrial heritage sites, historic protection buildings and historical and cultural districts to build a WorldSkills Museum with high quality. The company contributed 16.14% of the revenue from the 2023 renovation project. According to the company's announcement, the amount of new orders signed in 2023 increased year-on-year, showing an overall recovery trend. The company's order projects with a bid amount of over 100 million include the Shou County Ancient City Wall Area Cultural Tourism Night Tour Enhancement Project and the Old Museum Area Renewal and Renovation Project (131 million yuan), the Jiupai Rural Revitalization Science and Technology Transformation Center Project (109 million yuan), the Ordos Science and Technology Innovation Hall Project (223 million yuan), and the Ganzhou Nankang District Cultural Power Museum Project (176 million yuan). We believe that the company will continue to explore new fields and use art to empower the sustainable development of cities, which is expected to drive rapid future performance growth.

The company is vigorously expanding the new digital cultural tourism business and seizing the “cultural tourism fever” and “museum fever” opportunities.

The total amount of new orders signed by the company in 2023 was about 2,649 billion yuan, an increase of 1,063 billion yuan over the previous year. The increase in new orders is expected to drive the overall growth of the company's performance. The company seized the good opportunities of “cultural tourism fever” and “museum fever” and established the Fengyuzhu New Cultural Tourism Research Institute, which focuses on cultural tourism and experiential consumption research, to comprehensively intervene in urban renewal scenarios and vigorously expand the new digital cultural tourism business. By the end of 2023, the company had an on-hand order balance of 4.489 billion yuan, and there were plenty of on-hand order reserves.

The company strengthens IP drainage and content operation capabilities to continuously stimulate business growth potential. The company established an MR Research Institute focusing on spatial computing and VR/MR technology applications to actively explore immersive innovative experiences in the fields of cultural expo, cultural tourism, and exhibition. The Quzhou Tianwang Tower Immersive Art Museum, which the company participated in operation in 2023, the Tonglu Fangyu Kongxiangsu Cultural and Creative Complex, and the “Three-Body Immersive Art Exhibition” jointly launched by the company were selected for popular reviews and Douyin's local lifestyle list. We believe that the company continues to expand cultural exhibition programs, and its performance is expected to grow further.

Investment advice

The company's new orders in 2023 showed a recovery trend. Based on optimism about the company's fundamentals and future demand for 3D digital content, immersive VR cultural tourism, exhibition operations, etc., we expect the company's net profit to be 349 million yuan, 410 million yuan, and 45.2 billion yuan respectively in 2024-2026, up 23.56%, 17.61%, and 10.16% respectively. The corresponding EPS is 0.59 yuan, 0.69 yuan, and 0.76 yuan respectively. The corresponding valuations are 18 times, 15 times, and 14 times, respectively, to maintain the “purchase” evaluation grade.

Risk warning

The development of the metaverse industry fell short of expectations, policy support fell short of expectations, demand for new cultural infrastructure fell short of expectations, the intensity of competition in the industry intensified, the impact of the pandemic continued to exceed expectations, the company's new orders fell short of expectations, the company's repayments fell short of expectations, and bad debt losses exceeded expectations.