2017 performance in line with expectations
Huangshan Tourism announced its 2017 results: operating income was 1.78 billion yuan, up 6.9% over the same period last year; net profit belonging to the parent company was 410 million yuan, up 17.6% from the same period last year, and net profit after deducting non-return increased by 5.7%.
Performance is in line with market expectations.
Revenue side: the contribution of hotel business and commercial housing sales is larger. For the whole year, the scenic spot received 3.37 million passengers, an increase of 2.1% over the same period last year, driving the revenue of hotel and cableway business to grow by 6.2% and 3.4%.
Ticket revenue declined slightly, mainly due to a drop in unit prices due to ticket-free activities. The revenue contributed by commercial housing sales totaled 160 million yuan, an increase of 139% over the same period last year.
Profit side: net profit margin increased by 2.1 percentage points. Partly benefited from the impact of operating reform, resulting in an increase in gross profit margin. The company reduced its holdings of 10 million shares of Huaan Securities, increasing the current profit by 52.4 million yuan. However, the signing of a cooperation agreement with Huangshan Airport led to a 41% increase in sales costs, which was a drag on profit growth.
Trend of development
The opening of the Hangzhou-Yellow high-speed railway is expected to stimulate passenger growth. The company expects passenger traffic to grow by 3 per cent to 3.46 million in 2018. We believe that there is still a lot of room for growth in the off-season passenger flow in Huangshan Scenic spot. For example, December 2016 is the off-season for tourism, but the company launched a ticket-free activity for Anhui people, which led to a 112% year-on-year increase in passenger flow in that month. The Hangzhou-Huang high-speed railway will soon be opened in 2018, which will greatly shorten the time from the Yangtze River Delta to Huangshan Scenic spot, bring medium-and long-range passenger flow, and enrich the growth of passenger flow in the off-season.
Deepen internal reform and actively expand. 1) incentive reform: the company achieved a breakthrough in the incentive system for the first time, set up "winning performance awards" for senior executives, and linked executive bonuses to excess profits to enhance management motivation; 2) Marketing innovation: the company created more than 20 special marketing activities such as "ticket-free for citizens of Anhui Province" during the year; launched packaged products such as "scenic spots + hotels"; signed a cooperation agreement with Huangshan Airport to increase the proportion of long-distance tourists brought by the airport. 3) extension acquisition: the Taiping Lake project has completed equity delivery, and the Hongcun project is moving forward in an orderly manner, which will become a new driving force for the company's growth in the future. The company also invested 240 million yuan to participate in the establishment of Huangshan Saifu Fund, actively layout industrial investment.
Profit forecast
Taking into account the decrease in revenue from commercial housing sales and the increase in sales expenses in the future, we reduce our 2018 net profit forecast by 6.1% from 480 million yuan to 450 million yuan, and introduce a 2019 net profit forecast of 510 million yuan.
Valuation and suggestion
At present, the company's share price corresponds to 22 times 2019 / 19 times earnings in 2018 Compact. We maintain the rating recommended by Agamot B shares, but downgrade the target price by 9.13% to 18.11 yuan and increase 6.16% to $1.95 (affected by the appreciation of the renminbi), which is 38.8% higher than the current share price. 56.0% upside. The list price of A & B shares is based on the 2018 price / earnings ratio of 30 times / 20 times.
Risk.
Bad weather and so on affect passenger flow; the progress of the new project is not as expected.
