Event: on August 28, the company released its semi-annual report of 2023. The company realized operating income of 383 million yuan / year-on-year + 5.77%, net profit of-46 million yuan (- 33 million yuan in the same period last year), and non-return net profit of-52 million yuan (- 44 million yuan in the same period last year). Single Q2 realized operating income of 192 million yuan / year-on-year + 12.71%, net profit of-14 million yuan (- 16 million yuan in the same period last year), and non-return net profit of-18 million yuan (- 23 million yuan in the same period last year).

The operation of stock passenger transport business tends to be sound. 1) with the clearance of external disturbances and the recovery of passenger flow, although the industry side faces some challenges, the overall operation of the company is sound, with a total passenger volume of 10.13 million passengers / year-on-year-6.03% and passenger turnover of 857 million person-kilometers / year-on-year-6.75% in the first half of the year. By the end of the period, the company had a total of 2905 operating vehicles, including 1567 regular lines and 235 inter-city and county passenger lines. 2) from a split point of view, the scale of customized passenger transport in the passenger transport sector has been expanded, with 80 new vehicles, a total of 220 new vehicles, 7 new lines and a total of 32 reporting periods, achieving full coverage of key cities in the province; the oil sales business of the automobile service sector has been expanded, while 63 new charging terminals have been added, totaling 452, and 146 are under construction. The commercial operation business has completed the adjustment of the spatial layout of a number of stations, with an estimated annual rental income of 3.51 million yuan, and completed the investment promotion of the Lingshui and Haikou projects.

The sea travel duty-free injection continues to advance, and the performance commitment has been adjusted. During the reporting period, the company issued a notice to partially adjust the tax-free proposal for the acquisition of SeaTravel. The company plans to purchase 100% tax-free shares of SeaTravel by issuing shares and paying cash. The transaction price has been reduced from 5 billion yuan to 4.08 billion yuan, including 610 million yuan in cash consideration and 3.47 billion yuan in share consideration. The supporting fund raising has been adjusted from no more than 1.8 billion yuan to no more than 1.4 billion yuan, and the rest of the transaction elements have not changed. At the same time, the sea travel tax exemption also makes adjustments to the performance commitment, promising that the net profit for 2023-2026 will not be less than 1.98 trillion yuan (the original profit commitment is 3.58 pounds for 2023-2026). The net profit margin is respectively + 290.42%, 64.55%, 47.12%, 22.21%, and the net profit margin is 3.93%, 5.32%, 6.47%, 6.88% respectively.

Offline passenger flow continues to improve, and the supply side is also optimized. 1) from January to March of 2021-2023, the proportion of overnight tourists in Sanya accounted for 9.21%, 13.81% and 14.90%, respectively, and the consumption conversion rate was 20.12%, 28.08% and 28.05%, respectively. it has reached the overall level of tax-free transformation in Hainan outlying islands, and the operation tends to be mature. From January to July 2023, the number of customers in stores under the line of the sea travel duty-free city has reached 2.1733 million / year-on-year + 1.04%. 2) as of 2023Q2, SeaTravel Duty Free City has 1033 brands, 159 online fragrance brands, and more than 250 first-time or outlying island duty-free exclusive brands. 2) Lagerdale, as the company's main supplier, accounted for 76.05% of the total purchase volume from January to June 2023, an increase of 7.62pct compared with 68.43% in 2022, mainly affected by the expected advance stock increase. At the same time, the company has also established a direct purchasing relationship with Montblanc, Piaget and other 716 brands, and the long-term profitability is expected.

The operation of the sea travel duty-free city continues to improve. 1) with the gradual rebound of offline passenger flow, the income from January to July was 2.52 billion yuan / year-on-year + 5.10%, and the net profit from home was 131 million yuan / year-on-year + 105.09%, of which the income in the first half was 2.302 billion yuan, of which duty-free business / duty-paid business reached 2.126 billion yuan respectively, accounting for 45.62% of the forecast for the whole year, and the market share in the first five months has reached 7.97%. It is estimated that the tax-free market share of sea travel in 2026 will be about 5% Mur8%, corresponding to the business scale of RMB 12.1 billion-19.4 billion, and the prospect is promising.

Investment suggestion: the company is the leader of passenger transport in Hainan Province, and the duty-free sea travel ranks in the forefront of duty-free operators in Hainan. The release of the superimposed tax-free policy of consumption return has led to the rapid growth of the company's performance. With the return of travel, the flexibility of performance is expected to be highlighted. If assets are restructured and landed, it will greatly increase the company's operating performance. Assuming that the injection is completed in 2023, we expect the company's 2023-2025 net return profit to be 301q489max 685 million, taking into account the increase in the company's equity as a result of restructuring, with an EPS of 0.42 per share and 0.69 per share, maintaining a "buy" rating.

Risk tips: the impact of e-commerce diversion is higher than expected; labor and rental costs have increased significantly; industry competition has intensified significantly.