Incident: The company announced that in 2024H1, revenue of 0.66 billion yuan decreased by 41.82%; net profit to mother of 0.048 billion yuan decreased by 60.64%; net profit of non-return to mother of 0.041 billion yuan decreased by 62.92%. Among them, Q2 revenue of 0.37 billion yuan decreased by 53.76%; net profit attributable to mother of 0.014 billion yuan decreased by 86.01%; net profit not attributable to mother of 0.013 billion yuan decreased by 86.35%.
Revenue performance in the first half of the year was under pressure, and gross margin of the equipment business improved. By business, in the first half of 2024, the company's cultural and sports technology equipment/digital art technology/rail transit equipment/cultural and sports tourism operation services achieved main business revenue of 3.79/0.083/0.077/0.104 billion yuan, with gross margin of 36.90%/35.88%/15.10%/30.77%. Compared with 2023, the gross margin level recovered.
The first half of 2024 was affected by the objective environment. The project delivery schedule and operating rate fell short of expectations, affecting the revenue confirmation of the company's equipment business. However, the gross margin of the company's traditional projects continued to recover, and the cultural and sports tourism operation business continued to take shape. The in-depth expansion of existing projects and operating venues laid the foundation for development in the second half of the year.
Higher cost ratios dragged down performance, and cash flow improved year over year. The company's gross sales margin of 33.43% increased by 7.32pct in the first half of the year; the cost ratio for the period was 29.56% and increased by 15pct, of which the sales/management and R&D/finance expense ratios were 9.05%/26.49%/-5.98%, and the year-on-year change was 5.15pct/13.22pct/-3.37pct. The increase in the management expense ratio was mainly due to the increase in employee remuneration and depreciation combined with a decrease in the scale of income; the asset and credit impairment loss rate was -3.70% and decreased by 3.03 pcts, mainly due to a credit impairment deduction rate; 7.27% same decrease of 3.48 pct. The company's revenue in the first half of the year increased by 60.63 pct compared to 142.33%, and the current payment ratio increased by 42.41 pct; the net cash outflow from operating activities was 0.039 billion yuan, a decrease of 0.243 billion yuan over the previous year, mainly because the company's PPP project entered the operation period, and the project began to be gradually repaid. As of the end of June, the size of the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, accounts receivable plus contract liabilities were $15.0/0.9/1.49/0.32 billion, respectively, a change of -3.19%/10.11%/-8.43%/14.57% from the beginning of the year.
Investment proposal: We expect the company to achieve operating income of 1.509/2.032/2.242 billion yuan and net profit to mother of 0.111/0.16/0.193 billion yuan in 2024-2026. The closing price on August 30 was 33.62/23.41/19.33 times PE, respectively, maintaining the “gain” rating.
Risk warning: Market recovery falls short of expectations; overseas business risks; new business development falls short of expectations.