Net profit due to a 7% year-on-year decline in the first half of the year, and the 14% year-on-year decline in the second quarter was under pressure. In the first half of the year, the company achieved revenue of 0.385 billion yuan/ -1.93%, net profit of 0.112 billion yuan/ -7.22%, after deducting non-net profit of 0.112 billion yuan/ -11.32%. Looking at quarterly trends, the company's revenue and net profit to mother were basically the same year on year in the first quarter (revenue -0.05% /net profit +1.11% /net profit minus 0.66%); the second quarter was hampered by partial outbound travel diversion and new hotels due to high base and long-term destinations in the same period last year (Q2 revenue -3.52%, return to mother's performance -14.20%, net profit -19.68%), and there was some pressure.

The passenger flow performance of various ropeways was clearly divided, performing arts were basically stable, and the drag on the hotel business increased. In the first half of the year, the company's three ropeways received a total of 323.67 passengers/ +7.65%, revenue 0.198 billion yuan/ +1.46%, and a gross profit margin of 83.82%/-1.78pct. Mainly, the glacier ropeway with the highest gross margin was under pressure. Specifically, the Glacier Park Ropeway has the highest passenger flow base and price (140 yuan/person) at 1.5019 million/ -8.14% (up 1.6% from the same period in 2019), while the relatively lower priced Yunshanping Ropeway is 1.4661 million/ +19.97%, and the Yakniuping Ropeway is 0.2688 million/ +79.39% (all 60 yuan/person), showing good growth. Entertainment: Revenue of 0.075 billion yuan/ -1.79% in the first half of the year, gross profit margin 57.00%/-4.81 pct, net profit 0.034 billion yuan/ +0.74%.

In the first half of the year, I was impressed that Lijiang had a total of 395 shows/+13.83%, 0.8618 million visitors/+7.85%, and the customer unit price was -9%, which is expected to increase the price reduction. Hotels: Revenue in the first half of the year was 0.069 billion yuan/ -12.73%, gross profit margin 9.46% /-13.14pct. Relative effects of pressure and losses during the climbing period of hotels such as Shambhala. Furthermore, the Lugu Lake Indigo Hotel will be open for trial operation on July 30 this year, and the preparation period is expected to disrupt the performance.

In response to changes in the external environment, the company actively explores core resources, flexible pricing, and diversified product collaboration.

This year, the Lijiang region is facing an overall consumption environment. Last year's high base and long-term destinations were partially affected by the diversion of outbound travel. In response to business challenges, the company expanded passenger traffic on ropeways such as Spruce Ping and Yak Niu Ping, adapted to consumer cost performance trends, and promoted the growth of overall ropeway and entertainment passenger traffic, and the corresponding revenue remained basically the same. The company's annual report predicts a 4% year-on-year increase in revenue and a 9% year-on-year decrease in profit attributable to mother in 2024. After excluding the impact of the opening of the Lugu Lake Indigo project, the company's revenue and net profit to mother are expected to increase by 1% and 4%, respectively. Operating during the peak summer season is the key to being able to meet its annual budget. The company is the only A-share listed company in the Lijiang region. Currently, Huabang is the actual controller. It has been actively developing core resources in and around Lijiang in the past two years. It is currently promoting preliminary preparations for the renovation and expansion of the Yakniuping Tourist Ropeway, early approval and engineering construction work for investment and development projects such as the Lugu Lake Performing Arts Theatre, etc., which is expected to form a mid-line focus. At the same time, the company's dividend rate has been high in recent years, 85% in 2023, and subsequent dividend performance is also expected.

Risk warning: New projects are climbing, performing arts recovery falls short of expectations, and the resolution of equity issues falls short of expectations.

Investment proposal: Considering the impact of the overall consumption environment and new projects, we will temporarily reduce the company's 2024-2026 EPS to 0.41/0.46/0.51 yuan (previously it was 0.43/0.49/0.54 yuan. The main assumption is that the unit price for passenger flow and entertainment on the main ropeway will be reduced, corresponding to PE 21/19/17 times. The company is a leading tourist company in northwest Yunnan. It has good resource endowments and outstanding regional card advantages. In addition to some disturbances in the new project phase, the company's development is relatively steady. Stable cash flow and high dividend policies for the core business are expected to increase its appeal, balance the controlling interest game in the future, and maintain a “superior to the market” rating.