Description of the event

The company announced its 2024 three-quarter report: the first three quarters of 2024 achieved operating income of 0.505 billion yuan, up 16.59% year on year; realized net profit attributable to the parent company was 0.067 billion yuan, down 44.23% year on year; of these, 2024Q3 achieved operating income of 0.184 billion yuan, up 3.35% year on year, and realized net profit attributable to the parent company of 0.026 billion yuan, down 49.07% year on year.

Incident comments

High-speed rail customers are recovering well, and advertising is growing steadily. According to China Railway Group data, from January to September 2024, the number of passengers sent by national railways was 3.33 billion, an increase of 13.5%; in the first half of 2024, the company's high-speed rail advertising revenue was 0.281 billion yuan, an increase of 13.98% over the previous year, reversing the downward trend in revenue in 23 years, and is expected to be further repaired in the future as the country's railway passenger flow continues to recover. In 2024, agreements have been collectively signed with 18 domestic railway administrations to build a free high-speed rail digital network covering 31 provincial administrative districts across the country and reaching more than 2 billion passengers per year.

Outdoor naked eye 3D screens are being released at an accelerated pace, and hyperbolas are gradually forming. The company accelerated the construction of a second growth curve for outdoor naked eye 3D screens. It achieved revenue of 39.72 million yuan in the first half of 2024 due to the acceleration of release in Tianhe Road Commercial Zone in Guangzhou, Qinxian Street Commercial Zone in Taiyuan, Guiyang Fenshuichi Commercial Zone, Chengdu Chunxi Road Commercial Zone, Beijing Wangfujing Commercial Zone, and Shenzhen Luohu Wanxiangcheng Commercial Zone. It is expected to continue the trend in the third quarter. The company has made deep efforts in the field of AI digital content production, independently producing and launching naked eye 3D public art blockbusters such as “Theory of Evolution,” “Mirage,” and “Take A Breath”; the launch of “Take Home,” a “high-speed rail+business district” dual-scene image brand communication case, was widely praised.

Increased cost of point development resources is dragging down profits. A number of new high-speed rail sites were added, and the development of outdoor naked eye 3D screens drove the company's operating costs to increase by 38.74% year-on-year in the first three quarters of 2024, which dragged down the gross margin of the high-speed rail media. As of mid-2024, the company has signed 564 railway passenger terminals and opened and operated 509, including 496 high-speed rail stations and 5015 digital screen printers. It has built its own high-speed rail digital media network covering 31 provincial administrative districts across the country and reaching more than 2 billion passengers per year. Leasing liabilities and credit impairment further reduced profit margins. Leasing liabilities in the first three quarters of 2024 led to a sharp increase of 67.36% in interest expenses, and an increase in the repayment cycle for some customers confirmed that credit impairment losses increased 56.06% year-on-year compared to last year, further driving the year-on-year decline in profits.

Profit expectations: Considering the impact of point costs on the company's performance, it is expected to achieve net profit of 0.094/0.158 billion yuan in 2024-2025, corresponding PE of 45.71/27.13X, respectively, to maintain a “buy” rating.

Risk warning

1. Economic recovery falls short of expectations;

2. The number of travelers did not meet expectations;

3. The development progress of outdoor naked eye 3D falls short of expectations.