Conclusions and suggestions:
Company 1-3Q achieved revenue of 1.19 billion, down 9.64% from the same period last year, and realized net profit of 420 million, up 23% from the same period last year. Net profit after deduction was 333 million, down 3.76% from the same period last year. The decline in net profit after deducting non-profit was smaller than that of the China report, with a gross profit margin of 57.13%, an increase of 5 percentage points over the same period last year.
3Q achieved revenue of 510 million in a single quarter, down 14% from the same period last year, and realized net profit of 200 million, up 30% from the same period last year. Net profit after deducting non-profit was 170 million, up 12% from the same period last year, and gross profit margin was 62%, up 10.9% from the same period last year. This is mainly due to the reduction in costs caused by the disposal of Yuping real estate. 3Q's performance exceeded expectations, mainly benefiting from a low comparable base, higher gross profit margin, strict control of expenses, and a big increase in investment income.
On the expense side, 1-3Q increased its sales expenses by 346.11% year-on-year due to the increase in incentives and advertising fees paid to Huangshan Airport to expand Cosco's customer source. on the other hand, the increase in demand interest due to the purchase of financial products resulted in a 365.62% year-on-year increase in financial expenses, and the combination of the two factors increased the company's overall expense rate by 3.2 percentage points to 17.5%. 3Q affected by the decline in management costs, the comprehensive expense rate decreased slightly, down 0.43 percentage points from the same period last year to 13.72%.
In terms of garden development business, according to relevant policies, Huangshan peak season tickets dropped by 17.4%, which has a negative impact on the company's ticket revenue, but because it does not adjust off-season prices, the impact on fourth-quarter results is limited. On the other hand, the reduction in ticket prices is expected to attract more tourists. In addition, the Hangzhou-Huangshan high-speed railway will be opened at the end of this year, which will greatly shorten the time between major cities in the Yangtze River Delta (accounting for about 30% of tourists) and Huangshan, which is expected to rapidly boost the growth of weekend tourists in the Yangtze River Delta. As a result, the number of tourists to Huangshan is expected to rebound rapidly in 2019 (low base + high-speed rail opening). In addition, the price adjustment does not involve the company's ropeway, hotels and other business, the increase in the number of tourists will increase the company's comprehensive income.
In terms of extension, the company announced the investment in the construction of Huashan riddle Grottoes Scenic spot and the renovation project of Shilin Jing House, and has acquired the equity of Taiping Lake, and the overall extension is advancing smoothly, and it will form a linkage with Huangshan Scenic spot in the future, which is beneficial to the company's transformation to leisure scenic spots and improve its performance.
To sum up, by raising the previous profit forecast, it is expected that net profit will be 454 million and 512 million respectively from 2018 to 2019, a year-on-year increase of 9.6% and 13% respectively, corresponding to 15 times and 13 times of PE respectively. The current valuation of the company is relatively low. We are optimistic about the promoting effect of Hang-Huang high-speed railway on tourist volume and maintain the buying investment advice.
Risk hints: extreme weather occurs frequently, tourist growth falls short of expectations, force majeure worsens the natural endowment of the scenic spot, and the opening of Hangzhou-Yellow High-speed Railway is delayed.
