Key points of investment

Incident: On October 24, 2024, Songcheng Entertainment released its report for the third quarter of 2024. 2024Q1-Q3's revenue was 2.013 billion yuan, +24% year over year; net profit to mother was 1.008 billion yuan, +28% year over year; net profit without return to mother was 0.994 billion yuan, +28% year over year.

Q3 revenue/net profit to mother was -5%/-7%, and the performance was in line with expectations: 2024Q3 achieved revenue of 0.836 billion yuan, -5% year over year; net profit to mother 0.457 billion yuan, -6% year over year; net profit without return to mother was 0.446 billion yuan, -7% year over year. Revenue and net profit to mother were in line with expectations. The year-on-year decline in revenue was affected by factors such as last year's high base and the decline in Hangzhou and Lijiang projects.

Net profit margin declined slightly year on year: Q3 gross margin was 75.6%, -2.1 pct year over year, and +6.1 pct month over month. Under the premise of relatively rigid costs, revenue led to a year-on-year decline in gross margin. Q3 The total sales, management and financial expenses ratio was 9.5%, +1.3 pct year on year; net profit margin was 54.7%, -0.5 pct year over year, and +6.4 pct month-on-month, and profitability remained stable.

The holiday travel boom is expected to deliver results: stock projects remain high during the peak summer season, and potential projects such as Xi'an, Shanghai, and Foshan continue to climb. During the National Day, the 13th National Day Triennale received more than 2.6 million visitors, +60% compared to the 2023 National Day Golden Week; 481 shows, +42% compared to the 2023 National Day holiday. The company's new projects are growing steadily, and core holiday projects continue to be booming. Focus on the catalytic effect of holiday policy adjustments on consumption in the performing arts market.

Profit forecast and investment rating: As a leading tourism and performing arts company in China, the company continues to expand with the “theme park+cultural performing arts” model, uniquely positioned to form an excellent project model, and maintains a lead in operational iteration. As the tourism and entertainment industry gets back on track, the company is expected to quickly regain profitability. Maintaining the company's profit forecast, net profit due to mother for 2024-2026 was 1.05/1.31/1.5 billion, respectively, corresponding to the PE valuation 25/20/18 times, maintaining the “increase” rating.

Risk warning: Construction progress of projects under construction falls short of expectations, new project performance falls short of expectations, industry competition intensifies, etc.