Introduction to this report:

The company's customers mainly benefit from localized debt policies, and the company actively explores innovative businesses with sufficient on-hand orders, which will strongly support performance improvement.

Key points of investment:

Considering the slow progress of project delivery and the increase in new business development costs, EPS was lowered to 0.28/0.37/ 0.49 yuan in 2024/25/26 (previous value was 0.39/0.45/ 0.52 yuan), giving 2024 2.85xPS lower than the industry average, and the target price was lowered to 12.34 yuan (previous value was 13.43 yuan) to maintain growth.

Performance summary: Performance fell short of expectations. The first three quarters of 2024 achieved revenue of 1.167 billion yuan/ -31.55%, net profit to mother 0.053 billion/ -57.62%, after deducting 0.044 billion/ -59.60% of non-net profit; 2024Q3 achieved revenue of 0.571 billion yuan/ -15.96%, net profit of 0.002 billion yuan/ -97.61%, net profit to mother of -0.002 billion/ -103.65 %; Revenue recognition is mainly affected by project delivery progress, operating rates falling short of expectations, etc., and cost increases due to compounding new business exploration.

Benefiting from local debt policies, cultural and sports tourism construction is expected to pick up. Since 2024, the Ministry of Finance has arranged a 1.2 trillion yuan debt limit to support local settlement of hidden debts and the absorption of government arrears to enterprises. In order to ease the pressure on local governments to reduce debt, it is proposed to increase large-scale debt limits to replace hidden local government debt stocks at once, and step up support for local debt risk resolution. Funding for the construction of the local cultural, sports and tourism industry is expected to increase. The company's main projects are government projects. Both stock projects and incremental projects will benefit from on-going local debt policies to support improved performance, and innovative businesses will bring increased development. Since July 2024, the company has successively won bids for 7 large-scale cultural and sports tourism integrated service projects, including the Sichuan Universiade Cultural Development Theatre and the Tianjin Dongli Lake Live Performance Project. The total order amount is 0.479 billion yuan, which will strongly support performance improvement. In addition, the company is actively exploring innovative business sectors such as digital arts technology, tourism and performing arts, and venue operations, adding to the increase in subsequent projects participating in C-side operations, which can bring more performance growth points to the company.

Risk warning: consumer confidence is insufficient, competition is intensifying, and new business falls short of expectations;