I. Incident Overview
The company achieved revenue of 2.35 billion yuan in 2019Q3, a year-on-year decrease of 26.5%, net profit of 57.089 million yuan, a year-on-year decrease of 67.3%, after deducting non-net profit of 73.09 million yuan, a year-on-year decrease of 60.2%. The first three quarters of 2019 achieved a total revenue of 5.62 billion yuan, a year-on-year decrease of 8.8%; net profit of the mother was 160 million yuan, a decrease of 46.6% over the previous year; after deducting non-net profit of 37.593 million yuan, a year-on-year decrease of 88.0%.
II. Analysis and Judgment
The decline in performance was mainly affected by the settlement of real estate revenue during the transition period
The company's revenue and costs all declined in the third quarter, which is expected to be mainly affected by the progress of real estate settlement. In terms of expenses, due to the accrual of employees' wages and bonuses at the end of the previous year, 2019Q3's management expenses reached 181 million yuan, an increase of 9.9% over the previous year. The company's financial expenses increased by 3.8%, of which interest expenses increased by 162 million yuan/73.0%. Interest expenses increased by 301 million yuan/82.9% in the first three quarters, mainly due to a year-on-year increase of 2.38 billion yuan/75.9% in the company's loans.
Furthermore, due to the impact of reduced government subsidies and increased penalties, the company generated non-operating income and expenses of 20 million yuan.
The transformation of cultural tourism progressed steadily, and the project passenger flow performance was strong
The company has steadily accelerated the transformation of cultural tourism real estate in recent years. Among them, in 2018, the ancient town of Tongguanyao in Changsha, which the company focused on building, was grandly opened. The project included dozens of large-scale cultural tourism projects and successfully achieved full annual operation; Wuhu Xinhualian Jiuzi Ancient Town also opened in 2019; and various business formats of the Xinhualian Children's Dream Park project in Xining began full operation in July 2019. On the overseas side, South Korea's Xinhualian Splendid Mountain Villa project was approved by the local provincial assembly, and development permission was obtained in March 2019. Judging from the current operating situation, during the National Day, the passenger flow of the company's four major cultural tourism projects was strong, achieving a total of 500,000 visitors. In the future, while continuously enhancing the “Ancient Town +” model and providing an immersive “tour+play” experience, the company will also rely on the heritage of the ancient town to derive corresponding cultural IP and further develop a development strategy with cultural tourism as the core, thus fully integrating the company's internal and external resources, diversifying business risks, and continuously obtaining stable cash flow to support long-term development.
III. Investment Suggestions
The company's EPS in 2019-21 is expected to be 2.08, 2.69, and 3.12 yuan, and the corresponding PE valuations are 2.3X/1.8X/1.5X, respectively. Considering that the company has now begun a strategic transformation of cultural tourism, it will shift from a traditional housing enterprise to a “cultural tourism, real estate, and finance” diversified enterprise. The profit share of cultural tourism business may increase. Its valuation center is expected to transform from traditional housing enterprises to comprehensive cultural tourism real estate agents, covering it for the first time, and giving a “careful recommendation” rating.
4. Risk warning:
The contribution of the cultural tourism business fell short of expectations; project settlement fell short of expectations