2Q24 results are basically in line with our expectations

The company announced 1H24 results: revenue of 1.177 billion yuan, +59% year over year. We estimate that it will return to 114% in '19 (excluding flower rooms); net profit to mother of 0.55 billion yuan; net profit without return to mother of 0.547 billion yuan, +85% year-on-year. Corresponding to 2Q24 revenue of 0.618 billion yuan, or +22% year over year, we estimate an increase of more than 20% over the same period in '19 (excluding flower rooms); net profit to mother of 0.299 billion yuan, net profit from non-mother of 0.298 billion yuan, +24% year over year. The results were largely in line with our expectations. The net cash flow from 1H24 operating activities was 0.695 billion yuan, and the company's book capital as of the end of June was 3.15 billion yuan.

Financial split: 1) Revenue from the main 1H24 performing arts industry was 0.875 billion yuan, +50% year over year, recovering to about 108% in the same period in 2019 (including contributions from new projects). Among them, the Hangzhou project was affected by the slow recovery of East China tour groups, revenue recovered to about 73%, and gross margin was -0.3ppt to 60.5% year over year; the Sanya project was affected by outbound travel diversion and competition in Southeast Asia, revenue recovered to about 48%, and gross margin -0.2ppt to 78.9% year-on-year; the Lijiang project was affected by the comprehensive regulation of the local cultural tourism market Increased impact, revenue recovered to about 86% of 1H19, gross margin -3.5ppt to 76.9% year-on-year; Guangdong project revenue was 0.126 billion yuan, with a gross profit margin of 68.0%. 2) The 2Q24 sales expense ratio was +1.9ppt to 4.3% year-on-year, due to the increase in advertising investment in various scenic spots; the management expense ratio was +0.6ppt to 7.0% year-on-year.

Development trends

The summer park is somewhat divided. Since the opening of the Xi'an project in March of last year, the market-share oriented strategy has achieved remarkable results. With the opening of the second theater in July, we estimate that the number of summer visitors and ticket revenue increased more than 1 times over the same period last year. The Foshan project officially opened on 2/10 of this year, with an average of 4.2 shows per day on 1H24. The average length of time visitors stayed over 4 hours, and the number of summer shows and attendance remained at a high level. The Three Gorges Asset Light Project opened on 7/26, and there were about 170 shows in the first month of operation. In terms of traditional mature projects, we estimate that the number of summer shows in Hangzhou, Lijiang, and Zhangjiajie recorded a year-on-year decline, mainly due to last year's high base, consumption pressure, and the dispersion of tourism trends into traditional first-tier tourist destinations. We estimate that the unit price of visitors to various scenic spots will remain relatively stable in the first half of the year. In addition, the total service cost of the Three Gorges Asset Light Project is about 0.26 billion yuan, with a cumulative confirmed revenue of 0.215 billion yuan as of the end of June '24. The company expects to confirm more than 20 million yuan in Q3, and the remaining portion will be confirmed during the contract period.

Take positive steps to boost early projects and nurture new ones. The Hangzhou project launched various innovative activities such as night tours and dress ups to attract young visitors. The Sanya project continues to upgrade scenic spots and optimize activities, and cooperates with high-star hotels, duty-free shops, etc. to carry out online and offline joint marketing. The Shanghai project has completed the renovation and upgrading of the space above the second floor, enriching various IP joint name activities, and carrying out accurate marketing for different customer groups such as parent-child and team building. The Zhangjiajie project strengthens the construction of terminal markets such as inns and hotels, and develops research markets to cope with fierce competition in the performing arts market. It is recommended to focus on the recovery of passenger flow in the park as the Q4 base declines.

Profit forecasting and valuation

Maintain profit forecasts. The current stock price corresponds to 17.5/15.1 times P/E for 24/25. Maintaining an outperforming industry rating, considering the industry's valuation downgrade, and lowering the target price by 17% to 10 yuan, corresponding to 23/19 times P/E in 24/25, with 29% upward space.

risks

The recovery of the stock park fell short of expectations; the development of the new park fell short of expectations; the profit and loss of Huafang investment dragged down performance