Incident: On August 28, 2024, Songcheng Entertainment released its 2024 semi-annual report. 2024H1's revenue was 1.177 billion yuan, +58% year over year; net profit to mother was 0.55 billion yuan, +82% year over year; net profit without return to mother was 0.547 billion yuan, +85% year over year.

The Q2 results are in the middle of the forecast range: 2024Q2 achieved revenue of 0.62 billion yuan, +22% year over year; net profit to mother was 0.3 billion yuan, +23% year over year. Excluding the impact of restructuring investment income such as six houses in the same period in 2019, +27% compared to the same period in 2019; net profit after deducting 0.3 billion yuan compared to the same period in 2019, +24% year over year. Revenue and profit are in the middle of the forecast range, in line with expectations.

The performance of the main projects was divided, and the Three Gorges project confirmed management fee revenue: the main H1 project in 2024, Hangzhou/Sanya/Lijiang/Guangdong achieved revenue of 2.9/0.11/0.13/0.13 billion yuan, +29%/+6% /- (Guangdong project opened in 2024), 73%/48%/86% /- for the same period in 2019; net profit was 1.8/0.06/0.07/0.05 billion, +/ +4%/-15% /-; Xi'an and Shanghai projects Climb continuously. The difference in the degree of recovery of major projects is related to the local travel market, group travel situation, and competitive landscape. The Three Gorges Asset Light Project was officially opened in July 2024. The company confirmed the remaining management fee revenue in Q2. The H1 design and planning fee revenue was 0.14 billion yuan, compared to 0.08 billion yuan in the same period last year.

Potential projects continued to climb: The summer peak season maintained a high level of prosperity. Potential projects such as Xi'an, Shanghai, and Foshan continued to climb. During the summer season, Xian had normalized 10+ events, including 15 on July 13, the Guangdong project averaged 4.2 per day in the first half of the year, and continued to climb after the Shanghai project was rectified and upgraded. Profitability is expected to increase further in the future.

Profit forecast and investment rating: As a leading tourism and performing arts company in China, the company continues to expand with the “theme park+cultural performing arts” model, uniquely positioned to form an excellent project model, and maintains a lead in operational iteration. As the tourism and entertainment industry gets back on track, the company is expected to quickly regain profitability. Based on the slowdown in growth from the high summer base, the company's profit forecast was lowered. Net profit to mother for 2024-2026 was 1.05/1.31/1.5 billion yuan (previous value was 1.19/1.47/1.62 billion yuan), respectively. The corresponding PE valuation was 19/15/13 times, maintaining the “gain” rating.

Risk warning: Construction progress of projects under construction falls short of expectations, new project performance falls short of expectations, industry competition intensifies, etc.