Description of the event

In the first three quarters of 2024, the company achieved operating income of 2.013 billion yuan, +24.46% year over year; realized net profit of 1.008 billion yuan, +28.04% year over year; realized net profit of 0.994 billion yuan without return to mother, +28.05% year over year.

With 2024Q3, the company achieved operating income of 0.836 billion yuan, -4.69% YoY; realized net profit of 0.457 billion yuan, or -5.54% YoY; realized net profit of 0.446 billion yuan without return to mother, or -7.10% YoY.

Incident comments

At the industry level, the summer season was supported, driving the number of tourists to continue to grow in the third quarter. The increase in travel consumption was slightly lower than the increase in the number of visitors. According to the Ministry of Culture and Tourism's sample survey statistics, the number of domestic travelers in the third quarter of 2024 was 1.512 billion, up 17.2% year on year. The total travel expenses of domestic tourists were 1.62 trillion yuan, up 16.1% year on year, and per capita consumption was 1,071 yuan, down 0.9% year on year.

At the company level, the performance of new projects was outstanding, and the performance of old projects was divided. In the third quarter, the company's Three Gorges Ancient Scenic Area was grandly opened, with a total of 170 shows in the first month of operation, and the scenic area received nearly one million visitors; demand for performances for some old projects was also strong. Xi'an Qiangu is very popular. On top of the existing 3,200-seat No. 1 theater, 2,500 seats were newly opened to enhance reception capacity during the prime time of the tour. In terms of the number of performances, there were 586 shows in Xi'an, a maximum of 15 shows in a single day. The number of base shows increased 65.2% year-on-year., reception of visitors The largest number of large-scale tourist shows. The performance of some old projects in the third quarter fell short of expectations, such as Songcheng Ancient Love, Lijiang Ancient Love, Zhangjiajie Ancient Love, etc., and the number of basic events declined year over year.

In terms of profitability, the performance of gross margin and net profit margin after deduction is divided. In the first three quarters, the company's gross margin continued to improve. The gross sales margin/net margin for the third quarter was 71.87%/51.64%, respectively, +0.42/+1.89pct; the overall period expense ratio was 11.07%, +0.97pct, of which sales expense rate/management expense rate/financial expense rate/R&D expense ratio were 4.87%/6.42%/-1.57%/1.35%, respectively, +1.05/+0.46pct, respectively. The year-on-year increase in advertising investment in scenic spots, and the year-on-year increase in the company's equity incentive amortization expenses and R&D investment have led to an increase in various cost rates. The net interest rate improvement under the year-on-year increase in the overall period was mainly due to non-recurring profit and loss. The company deducted non-net interest rate of 53.39% in 2024Q3, or -1.39pct year on year.

Profit forecast and investment advice: Optimistic that the company will complete the potential impairment calculation of Huafang assets, focus on the main performing arts business, and go to battle lightly.

Old projects have been upgraded to enhance reception capacity and economic benefits, and new projects have gradually matured to build new momentum for steady growth in the medium to long term. The company's net profit for 2024-2026 is expected to be 1.137/1.335/1.473 billion, respectively, and the corresponding PE is 23/19/17X, respectively, maintaining a “buy” rating.

Risk warning

1. The recovery in market demand in some regions falls short of expectations;

2. Increased competition in the industry has led to a decline in product prices;

3. The pace of product iteration is slow, and product strength is declining.