Key points of investment:

The company released its 2024 semi-annual report, and the performance revenue was in line with expectations. In the first half of 2024, the company achieved operating income of 4.351 billion yuan, a year-on-year increase of 4.12%, achieved net profit of 72.57 million yuan, a year-on-year decrease of 31.84%, and realized net profit deducted from non-mother of 73.83 million yuan, a year-on-year decrease of 26.26%. In the second quarter, the company achieved operating income of 2.428 billion yuan, a year-on-year decrease of 3.66%, realized net profit to mother of 0.102 billion yuan, a year-on-year decrease of 8.72%, and 0.102 billion yuan after deducting non-net profit, a year-on-year decrease of 5.23%

Passenger traffic in the Wuzhen Scenic Area continues to improve, and Gubei Water Town is slightly pressured by the tourist boom in the suburbs of Beijing. In the first half of 2024, Wuzhen Scenic Area received a total of 3.8275 million visitors, an increase of 7.87% over the previous year. Among them, Dongzha received 1.1057 million visitors, up 2.64% year on year, and Xizha received 2.7218 million visitors, up 10.16% year on year. During the reporting period, Wuzhen Company achieved revenue of 0.859 billion yuan, a year-on-year increase of 2.20%, and achieved net profit of 0.153 billion yuan, a year-on-year decrease of 19.82%. The year-on-year decline in net profit was mainly affected by fixed costs such as depreciation. The Gubei Water Town Scenic Area received a total of 0.6004 million visitors, a year-on-year decrease of 11.50%. The decline in the number of visitors received was mainly affected by factors such as the decline in popularity of scenic spots in the suburbs of Beijing and the spillover of demand from the surrounding tourist market. Gubei Water Town Scenic Area achieved revenue of 0.275 billion yuan during the reporting period, a year-on-year decrease of 21.72%.

Affected by the policy, China Youth Expo Federation's revenue in the first half of the year was slightly pressured. Net profit from the hotel business decreased year-on-year losses, and the revenue from the travel agency business increased sharply year-on-year, and actively promoted the development of the visa business. In the first half of 2024, China Youth Expo Federation achieved operating income of 7.81%, a year-on-year decrease of 12.71%, and net profit was slightly profitable. The year-on-year decline in revenue was mainly due to the impact of industry policies on some projects, and the scale of revenue was reduced or delayed. Shanshui Hotel achieved revenue of 0.15 billion yuan, a year-on-year decrease of 24.41%, and net profit and loss year-on-year. During the reporting period, Shanshui Hotel focused on the travel experience, enhanced the brand through culture, service and new media marketing, and optimized membership policies to enhance market competitiveness. The travel agency business achieved a significant year-on-year increase in revenue in the first half of the year. The company developed specialty products around the three major themes (research travel, cultural tourism, and red tourism) and launched the “Ingenious Carefully Selected Series”. The exit visa business remains leading, the overseas entry visa business is growing steadily, the Philippine visa center has achieved profits, preparations for the Israel and Saudi visa centers are progressing in an orderly manner, and the four-city visa service center project in the UK has won the bid.

Investment analysis opinion: As a high-quality ancient town in the country, Wuzhen brings stable and healthy cash flow to the company. The hotel occupancy rate and customer unit price in the scenic area business have high room for growth, the external environment for outbound travel has improved, and the performance of travel agencies and integrated marketing can be expected to be flexible.

Considering the pressure on terminal consumption and depreciation and amortization of new assets such as hotels, we lowered our 24-26 profit forecast. We expect the company to achieve net profit of 0.283/0.372/0.425 billion yuan in 24-26 (original value 0.409/0.592/0.751 billion yuan), and the current stock price corresponding to 24-26 PE is 24/18/16 times. Changbaishan and Emeishan were selected as comparable companies. According to the comparable company's valuation, the company was given 24 times 29 times PE. There is room for growth of more than 20%, maintaining the “buy” rating.

Risk warning: The recovery of surrounding tourist attractions fell short of expectations, progress of new projects fell short of expectations, etc.