Description of the event
In 2023, the company achieved operating income of 1,926 billion yuan, +320.76% year-on-year; net profit to mother - 110 million yuan, continuing the year-on-year loss.
If investment income and impairment losses resulting from holding long-term equity investments in Huafang Group Company are not taken into account, net profit attributable to mother is 829 million yuan.
In the first quarter of 2024, the company achieved revenue of 560 million yuan, +138.70% year-on-year, and net profit of 255 million yuan to mother, +317.33% year-on-year.
Incident comments
In 2023, among traditional stock projects, the Ancient Scenic Area project, a long-term tourist destination, was more advanced in recovery; the new construction project climbed steadily. Looking at specific sub-projects, the revenue of the Guilin and Zhangjiajie Ancient Scenic Areas all exceeded the same period in 2019, with recovery levels reaching 118% and 105%. The Lijiang Ancient Scenic Area recovered to 97%, and the performance was also relatively leading. However, the revenue recovery level of the Hangzhou project, which is a short-distance tourist destination, and the Sanya project, where passenger flow dividends have weakened, is unsatisfactory, at only 71% and 49%, respectively. Among the new projects added in recent years, the Xi'an and Shanghai projects contributed 52.26 million yuan and 97.8 million yuan respectively in 2023, accounting for 3% and 5% of total revenue respectively.
In 2023, in terms of profitability, there is still room for some old projects to recover, and the superposition of new projects is still being cultivated to lower the overall gross margin level. The overall gross profit margin in 2023 was 66.35%, compared to -5.05 pcts in 2019. Among them, the gross margins of the Hangzhou, Sanya and Lijiang projects were -3.48/-8.78/ -2.80 pcts compared to 2019, respectively. In terms of cost rates, the company continues to deepen its internal management skills, strengthen vertical management, optimize the employment structure, focus on digital empowerment, and continuously explore management potential. The cost control results are outstanding. Sales, management, finance and R&D cost rates are -0.99/+0.40/-1.05/-0.30 pcts compared to 2019, respectively.
In the first quarter of 2024, performance flexibility was highlighted on the basis of a low base. During the Spring Festival Golden Week, many of the company's indicators fully surpassed the same period in 2019. Among them, the total number of performances in the same period of time in 2019 was 251%, the total number of visitors received was 207% in the same period in 2019, and the total revenue was 189% in the same period in 2019.
Profit forecast and investment advice: I am optimistic that the company will complete the potential impairment calculation of Huafang assets, go to battle lightly, steadily climb and repair old projects, gradually cultivate and mature new projects, and build new momentum for steady medium- to long-term growth. It is estimated that in 2024-2026, the net profit of each company will be 1,282/15.45/1,739 million, respectively, and the corresponding PE will be 21/18/16X, respectively, maintaining a “buy” rating.
Risk warning
1. The recovery in market demand in some regions falls short of expectations;
2. Increased competition in the industry has led to a decline in product prices;
3. After the opening of the new project, the operation and climbing period is long;
4. The pace of product iteration is slow, and product strength is declining.