Core views

24H1 earned 1.177 billion yuan, +59.0% year over year, and achieved net profit of 0.55 billion yuan to mother, +81.8% year over year. The net deduction was 0.547 billion yuan, +85.2% YoY. The stock project has been steadily restored, and the revenue of the Hangzhou project is growing rapidly. The opening of Guangdong during the Spring Festival has shown a strong ability to generate income, and the number of shows in the Three Gorges, which opened during the summer season, was also impressive.

The upgrading and transformation of existing content continues to advance, and management continues to be upgraded. With the good performance of summer stocks and new projects, it is expected that each project will continue to maintain a steady recovery trend.

occurrences

The company released its 2024 semi-annual report, with 24H1 revenue of 1.177 billion yuan, +59.0% year-on-year, and achieved net profit of 0.55 billion yuan to mother, +81.8% year-on-year.

Brief review

The performance was in line with expectations, and the resilience of existing projects was restored

24H1 deducted 0.547 billion yuan from non-return mother, +85.2% year on year; revenue for single 24Q2 was 0.618 billion yuan, +22.1% year over year, net profit to mother 0.299 billion yuan, +23.2% year over year. 24H1 operating cash flow was 0.695 billion yuan, +28.3% YoY. 24H1 gross profit margin was 69.2%, up 5.2pct year on year; on the cost side, 24H1 sales expenses ratio was 4.50%, +1.8pct year over year, which is an increase in advertising investment in various scenic spots. The management expense ratio was 7.44%, -0.6 pct year on year, and the overall cost rate for the period was 11.27%, -0.3 pct year on year; by project, 24H1 Hangzhou Songcheng earned 0.293 billion yuan, +29.4% year over year, gross profit margin 60.47%, and -0.26 pct year over year. Sanya's revenue was 0.112 billion yuan, +6.5% year over year, and gross profit margin was 78.86%, -0.20 pct year on year. Lijiang's ancient love was 0.125 billion yuan, -7.7% year over year, gross profit margin 76.91%, -3.49 pct year on year. Guangdong Ancient Love is 0.126 billion yuan, with a gross profit margin of 68.00%. The Shanghai Songcheng subsidiary had revenue of 45.9816 million yuan and net loss of 20.0275 million yuan. E-commerce fee revenue +119.8%, design planning fee revenue +86.6%. The balance of projects under construction at the end of 24H1 was 0.151 billion yuan, compared to -71.4% at the end of 2023, mainly including the balance of the Xitang project of 0.129 billion yuan. The stock project has been steadily restored, and the revenue of the Hangzhou project is growing rapidly. The opening of the business during the Spring Festival in Guangdong through the ages has shown a strong ability to generate income, and the gross margin is also excellent. The Three Gorges, which opened during the summer season, also showed impressive results.

Content upgrade management has been improved, and new projects have been released incrementally

The Guangdong Ancient Scenic Area officially opened in February 2024. It is the company's 9th self-operated scenic spot and the first cultural tourism project centered on performing arts in the Guangdong-Hong Kong-Macao Greater Bay Area. Since its debut, “Love Through the Ages in Guangdong”, it has performed 9 shows in a single day for many consecutive days, breaking multiple records for the number of shows of the newly opened “Love Through the Ages” in a single day. In the first half of the year, it averaged 4.2 shows per day, and the average length of time visitors stayed for more than 4 hours. Three Gorges Ancient Love opened in July, setting a new single-day performance record for large-scale tourism and performing arts projects in Hubei during the summer season. At the same time, the company once again rectified and upgraded “Shanghai Through the Ages” based on market feedback, launched a large-scale live performance “Love with the Bagpipe”, carried out “boutique” upgrades and rectification of outdoor programs in various scenic spots, and initiated comprehensive rectification and upgrading work on the space above the second floor. The Xi'an Ancient Scenic Area opened Theater No. 2. Since the summer, Xi'an Ancient Situation has normalized the performance of more than 10 shows. Songcheng, Hangzhou completed the upgrading and renovation of the parking lot, adding more than 1,100 parking spaces; the company strengthened management, specified the vertical management system, promoted the mastery and implementation of the management system through various measures such as training, assessment, and incentives, promoted the company's medium- to long-term development in terms of both quality improvement and efficiency, and carried out regular business skills training assessments for first-line departments. With the summer stock and the good performance of new projects, it is expected that each project will continue to maintain a steady restoration trend, and that the new projects will continue to cultivate slopes and contribute to the new volume.

Investment advice: Net profit due to mother is expected to be 1.158 billion yuan, 1.387 billion yuan, and 1.61 billion yuan from 2024 to 2026. Current stock prices correspond to PE of 17X, 14X, and 12X, respectively, maintaining an “incremental” rating.

Risk analysis

1. The main projects have basically been upgraded and iterated on content and product models in the past few years. Whether the performing arts content and presentation form match the market positioning under environmental improvements still needs to be verified. There is still uncertainty about how the performing arts content matches the increase in the repurchase rate and supply-side reforms; 2. After urban performing arts projects have undergone transformation, upgrading and opening, it is expected that they will still need a climbing verification period, and the verification of urban performing arts projects in major cities is significant for the company's subsequent expansion of performing arts projects in major cities. The development model is significantly different from the traditional model, and the market effect has yet to be verified; 3. The operating effect of light asset projects has yet to be verified; There is still room for expansion to be verified by the market; 4. Some participating companies have certain risks and are worth paying attention to in terms of subsequent investment return contributions or related risks; 5. The company's 2022 financial report was issued by an accounting firm with a qualified audit report, and the 2024 company announcement stated that the 2023 audit agency would be changed from Lixin Certified Public Accountants to Zhongxi Certified Public Accountants, so it received a letter of concern from the Shenzhen Stock Exchange. The letter of concern requested the company to explain whether there were any major differences with the original auditor on accounting processing matters relating to 2023. Possible future risks of this matter still require attention.