Performance was pressured by resistance to delivery of cultural tourism equipment projects. The new business increased spending to 2024H1 to achieve revenue of 0.66 billion yuan/yoy -41.8%, net profit to mother of 0.048 billion yuan/yoy -60.6%; 2024Q2 revenue 0.37 billion yuan/yoy -53.8%, and net profit to mother of 0.014 billion yuan/yoy -86%. The decline in revenue in the first half of the year was mainly due to the delivery schedule and operating rate of some projects falling short of expectations. At the same time, the increase in pre-development and personnel reserve costs for ToC projects further dragged down apparent profits. Considering that the traditional main business is still under some pressure, and the cultural and sports tourism operation business is still climbing, we lowered our profit forecast for 2024-2026. We expect net profit to be 1.15/1.63/2.14 (previous value 1.86/2.37/2.99) billion yuan, yoy -17.2%/+20.9%/+22.7%, corresponding EPS is 0.28/0.40/0.52 yuan. The current stock price corresponds to PE 32.5/23.0/17.5 times. The company's traditional main business may benefit in the long term The cultural, sports and tourism equipment renewal policy has achieved a lot of results in the transformation of cultural tourism operations. I am optimistic that the second curve will drive performance improvement and maintain a “buy” rating.
The traditional main business is still at a low point of adjustment. Cultural and sports tourism operations are growing strongly. Sub-business: 2024H1 Cultural and Sports Equipment/Mathematical Technology/Rail Transit achieved revenue of 0.379/0.083/0.077 billion yuan, YOY -58.6%/-30.5%/+107%, and the rail business picked up sharply year on year. The company is steadfastly promoting the integrated transformation of culture, sports and tourism. The 2024H1 C-side operation service business generated 0.104 billion yuan in revenue, with a year-on-year growth rate of about 60% (2023H1 other business revenue 0.064 billion yuan). Projects that have already been put into operation have climbed smoothly, and reserve projects have blossomed more under its own model of cost reduction and offsite replication, and there is strong momentum for subsequent growth. Looking at specific scenarios, (1) Cultural tourism operation: 2024H1 “Tonight Gongxixi” was selected as the first batch of new space cultivation projects for immersive smart tourism experiences in the country. Orange Island Immersive Art Park and Dalian Future Fantasy City can be expected to land, indicating that its comprehensive cultural tourism solution integrating “strategy, construction and management” has been recognized by the market. (2) Stadium operation: 2024H1 has expanded to more than 20 operating stadiums (13 in 2023), a standardized management system for theaters has gradually taken shape, and the 2024H1 subsidiary Dafeng Culture has achieved break-even.
Gross margin/cash flow increased steadily, with on-hand orders supporting subsequent performance transformation of 2024H1 gross profit margin of 33.4% /yoy+7.3pct; 2024Q2 gross profit margin of 7.3% /yoy-3.5pct; gross profit margin of 30.6% /yoy+4.6pct, net profit margin of 3.8% /yoy-8.8pct, mainly due to significant improvement in gross margin for sports and sports equipment. Expense side: 2024H1 sales/management/R&D/finance expenses yoy +35.1% t/ +39.1%/-15.1%/+33.3%, corresponding expense ratio is 9%/18.3%/8.2%/-6%. The net operating cash flow of 2024H1 was +0.243 billion yuan year-on-year, mainly due to PPP projects entering the operation period and the company taking the initiative to strengthen the recovery of funds for various projects.
According to public information, since 2024, the company has won bids for a number of large-scale cultural, sports and cultural tourism integration projects such as Changzhou Dinosaur Planet and the Beilun District Cultural Center. As of 2024H1, the company has not fulfilled the contract amount of 3.115 billion yuan, an increase of 0.372 billion yuan over the end of 2023, and the overall level of on-hand orders has remained high.
Risk warning: The bid fell short of expectations, the project delivery schedule fell short of expectations, the expansion of the stadium operation project was blocked, etc.