Incident: The company disclosed its 2023 annual report: 1) In 23, the company achieved revenue of 842 million yuan/ +13.8%, and realized net profit of -0.69 million yuan/ -275%, net profit of non-return to mother -90 million yuan/ +10.70%; 2) The 23Q4 company achieved revenue of 232 million yuan and realized net profit to mother of -27 million yuan. 3) Annual non-recurring profit and loss of $21 million ($140 million in '22).

Gross profit margin declined slightly year over year, and net interest rate declined significantly due to large fluctuations in non-recurrent factors. 1) The company achieved a gross sales margin of 13.88% /-0.58pct in 23, mainly affected by the increase in material costs in the automotive integrated service business; 2) 23 sales rate 1.35% /-0.22pct, management rate 21.23% /-3.24pct, R&D rate 0.12% /-0.05pct, financial rate 2.06% /+0.74pct, due to additional bank loans, which led to an increase in financial expenses; 3) Net sales margin in '23 (5.26% in '22), the difference mainly comes from assets Dispose of proceeds.

Thanks to road passenger travel restoration in '23, the company completed the annual passenger traffic volume of 1.68 million passengers/ +10.5%, driving growth in all of its main businesses. 1) The company's passenger transport business revenue was 502 million yuan/ +6.1%, of which the public bus model achieved revenue of 356 million yuan, accounting for about 71%, and the responsible business form achieved revenue of 144 million yuan, accounting for about 29%. The company built a comprehensive passenger transport service system with collaborative development of multiple modes of transportation to promote the transformation of the traditional passenger transport model; 2) The external revenue of the automobile service business was 206 million yuan/ +27.4%, of which, it vigorously expanded the fuel business, with external revenue of 125 million yuan/ +21.63%, and promoted charging infrastructure construction and automobile sales and service business; 3 ) The commercial operation sector completed space layout adjustments at Haikou East Bus Station, Tunchang Bus Station, and Qiongzhong Bus Station. In total, it can add about 208 million yuan in rent revenue every year, and successfully transfer Ledong Liguo Station to revitalize existing assets.

After the restructuring plan was adjusted, there was an implied significant reduction in market value. The company disclosed the adjusted restructuring plan in March. The valuation dropped from RMB 4.08 billion in the previous round of the plan to RMB 2,037 million, and the 24-26 performance commitment was lowered from RMB 326/487/587 million yuan to RMB 1.61/182/202 million yuan. According to the plan, 85% of the transaction consideration is a share payment (issuing 135 million shares to Hainan Travel Investment at 1,286 yuan/share), 15% is a cash payment, and a fixed increase of capital raised does not exceed 738 million yuan (1.4 billion yuan from the original plan). If issued at 80% of the current share price, the total share capital will increase to 505 million shares after the transaction. Based on performance promises, 80% increase in share capital from the current stock price, and the market value of the original business of 3.8 billion yuan, the duty-free business implied a valuation of 4.754 billion yuan, corresponding to the 24-26 PE valuation, which is 29/26/23 times, respectively.

Profit forecast and investment suggestions: We expect the company's net profit to be -014 million yuan, 20 million yuan, and 47 million yuan respectively in 24-26. The stock price on April 17 corresponds to the 25-26 PE, respectively. The high valuation is mainly due to duty-free business injection expectations. Currently, the company is actively promoting the tax exemption for sea travel. If the restructuring is successfully completed, the duty-free business is expected to inject new momentum into the company's growth. It is recommended to continue to monitor the progress of the company's subsequent restructuring and maintain the “increase in wealth” rating.

Risk factors: risks where transactions are not progressing as expected, macroeconomic risks, business-related risks, policy risks.