1H24 revenue grew steadily, and 2Q profit reversed losses month-on-month

China Youth Travel 1H24 achieved revenue of 4.351 billion/yoy +4.1%, net profit of 0.073 billion/yoy -31.8%, deducted non-net profit of 0.074 billion/yoy -26.3%, and deducted non-net interest rate of 1.70% /yoy-0.7pct, mainly due to increased fixed costs such as depreciation. 2Q24's revenue was 2.428 billion yuan/yoy -3.7%, deducting 0.102 billion/yoy -5.2% of non-net profit and 4.20% /yoy-0.1pct/qoq+5.7pct of non-net interest rate, reversing the loss from month to month. Looking ahead to 2H24, the boom in the cross-border travel market will pick up, and travel agencies can be expected to recover and be flexible, but there is still some pressure on the increase in passenger flow and passenger unit prices in the two towns. Considering the pressure on the operation of the main scenic spots, it is estimated that EPS0.36/0.43/0.50 yuan (previous value: 0.54/0.68/0.82 yuan) in 24-26 years is comparable to the average PE 18X forecast for 24-26. Considering that the recovery in outbound travel demand leverages valuation flexibility, the scarcity of comprehensive cultural tourism platforms is given 28X PE for 24 years, with a target price of 10.08 yuan to maintain “additional holdings”.

The operation of the two major scenic spots, Wuzhen and Gubei, is under pressure

In 1H24, Wuzhen achieved revenue of 0.859 billion/yoy +2.2%, and net profit of 0.153 billion/yoy -19.8%, mainly due to fixed costs. The Wuzhen Scenic Area continues to enrich its business format, rich in immersive experiences. The “culture+exhibition” dual track development. The 1H24 Scenic Area/Dongzha/Xizha received 3.828/1.106/2.722 million visitors, +7.9/2.6/10.2%, respectively. 1H24 Gubei Water Town received a total of 0.6 million/yoy -11.5% of visitors, achieving revenue of 0.275 billion/yoy -21.7%, and a net loss of 0.061 billion. This is mainly due to the decline in the popularity of scenic spots in the suburbs of Beijing and the spillover of consumer demand for surrounding tours. In addition, the decline in customer unit prices also had a certain impact on the operation of the scenic area. The per capita consumption of 1H24 Wuzhen/Gubei Water Town was 224/458 yuan, respectively, or -5.2/ -11.5% compared with the previous year.

Integrated marketing performance is lackluster, and the cross-border travel business is picking up rapidly

Integrated marketing operations were affected by industry policies, and some revenue was reduced or postponed. 1H24 China Youth Expo Joint's revenue was 0.781 billion/ -12.7% YoY, and net profit was slightly profitable. Shanshui Hotel is committed to becoming a “pioneer of cultural tourism hotels in China”, achieving 0.15 billion/yoy -24.4% of revenue, mainly due to the reduction in the scale of loss-making stores. Net profit decreased losses year on year, and the business trend is improving. The travel agency business achieved a significant year-on-year increase in revenue, according to data from the Ministry of Culture, Tourism and the Immigration Administration. The number of domestic travelers and entry/exit personnel in 1H24 was +14.3%/+70.9%, respectively. The resumption of international flights led to a significant improvement in inbound and outbound operations. The company has been steadily expanding its entry visa business, and the Philippine Visa Center has been profitable since it opened at the beginning of the year.

Steady development of strategic investment; marginal improvement in 2Q gross margin

1H24's strategic investment business is developing steadily, and Chuangtech's IT business is operating steadily. 1H recorded revenue of 1.647 billion yuan/37% of total revenue, and net profit of 0.024 billion yuan. The gross margin of 1H24's scenic area/hotel/IT business was 70.1/24.1/ 5.8%, compared with -5.0/-3.2/+0.7pct for the full year of '23, and the 1H24 comprehensive gross profit margin of 24% /yoy-1pct. 2Q24 profit improvement, comprehensive gross profit margin 26.8% /yoy+0.4pct/qoq+6.2pct.

On the cost side, the 1H24 sales expense ratio was 9.5% /yoy+1.3pct, of which employee remuneration was +21.3%; the management expense ratio was 7.1% /yoy-0.5pct, of which asset depreciation ratio was +9.9%. Net profit for 1H24 was 0.073 billion/yoy -31.8%, of which net profit for 2Q24 was -8.7% YoY.

Risk warning: The recovery of the surrounding travel market fell short of expectations, subsidies were reduced, and the progress of new projects fell short of expectations.