Description of the event

Revenue of 336 million yuan, -0.43% year on year; net profit of 25.5 million yuan, -60.51% year on year; net profit without deducted return to mother of 22.45 million yuan, -62.77% year on year.

Incident comments

Under a high base, passenger flow performance was lackluster. Combined with ticket exemptions, the number of valid ticket purchasers affected and dragged down revenue side performance. The number of visitors to Huangshan Scenic Area in January-February was -6.8% year-on-year. Among them, during the 8-day Spring Festival holiday, Huangshan Scenic Area attracted a total of 208,000 visitors from home and abroad, an increase of 26.78% over the previous year. However, after the Spring Festival, due to weather and other factors, combined with the high base figure for the same period last year, the passenger flow growth rate was lackluster. In terms of price, activities such as ticket exemptions have led to a decrease in the number of valid ticket purchasers, which directly affects ticket revenue in the scenic area sector. Since 2024, Huangshan Scenic Area will launch “Free of Discounts? “Promotion of Consumption” series of activities, including ① free admission open day event (every Wednesday of the first quarter of 2024, a total of 12 days, Huangshan Scenic Area held a “free ticket open day” event for visitors from around the world), ② half-price tickets for citizens of seven cities (in the first quarter of 2024, citizens of Huangshan, Anqing, Chizhou, Xuancheng, Quzhou, Nanping, and Shangrao can enjoy a half-price discount on Huangshan Scenic Area tickets), ③ Free admission for specific groups (18 years old in the first quarter of 2024) Adolescents under (not included) and people aged 60 (inclusive) and above Enjoy free admission to Huangshan Scenic Area), ④ Half price tickets for overseas visitors, etc. (Throughout 2024, overseas visitors will enjoy a half-price discount on Huangshan Scenic Area tickets).

In terms of profitability, the revenue side showed lackluster performance. On the cost side, due to the fact that Taiping Lake, Huashan Mysterious Cave, and the Huicai sector were still climbing, Huangshan's effective ticket revenue fell, causing cost rigidity to drag on gross margin, resulting in the company's comprehensive gross margin of -8.28 pcts year-on-year. The cost ratio remained basically flat during the period, but due to compensable losses in 2023Q1, income tax expenses increased year-on-year. Ultimately, the overall net interest rate level was -12.29 pcts year on year. Despite a significant year-on-year decline in net profit, the recovery levels of the company's revenue and net profit to mother were as high as 127% and 108%, respectively, compared to 2019Q1.

The global layout is being fully promoted, and efforts such as hotel project upgrades, ropeway+business linkage, operation of new stores in Huishang's hometown, and exploration of asset-light models are progressing steadily. In 2024, the company will accelerate the pace of mountainous and shanshita hotel renovation and upgrading projects, improve the Taiping Lake business layout, and ensure that the Pinghu Holiday Hotel renovation project is put into operation on schedule; build a ropeway+ business model, relying on the expansion of the ropeway project to drive the export of the company's diversified business segments; while promoting the operation of direct-run stores, the hometown of Huishang will accelerate the export of an asset-light model and enhance brand value.

The optimistic company will benefit from multiple benefits such as improved traffic conditions, the transformation of hotel projects, and the upgrading of the catering business model to achieve a steady increase in revenue performance. In 2024, with the opening of the Chihuang High Speed Rail, passenger flow into the mountains is expected to further improve; the volume and price are expected to rise again with the renovation and upgrading of hotels on the mountain; in the restaurant sector, new stores in Huishang's hometown sector mature one after another and explore the expansion of asset-light models, which is expected to reduce the drag on the company's performance. The company's net profit for 2024-2026 is estimated to be 4.7/5.2/570 million, respectively, and the corresponding PE is 18.72/16.68/15.46X, respectively, maintaining a “buy” rating.

?

Risk warning

1. Passenger flow recovery falls short of expectations;

2. Huicai's expansion is progressing slowly;

3. New scenic spot projects have not successfully reduced losses;

4. The pace of improvement of the hotel sector project falls short of expectations.