Incident: On April 16, the company released its 2023 annual report. The company achieved operating income of 842 million yuan/year over year, net profit of 0.69 million yuan (0.39 million yuan in the same period of the previous year), net profit of 90 million yuan (-101 million yuan in the same period last year); single Q4 achieved operating income of 232 million yuan/year on year -6.81%, net profit to mother of 27 million yuan (137 million yuan for the same period last year), net profit of -34 million yuan (0.09 million yuan for the same period last year) ).

Actively expand new businesses, and stock revenue is growing steadily. 1) In 2023, external disturbances were cleared, passenger flow resumed, and the company's operating performance picked up. In 2023, it completed a total of 1968 million passengers/+10.50% YoY, and completed passenger traffic turnover of 1,696 billion people km/ +12.62% YoY. This is a recovery from the same period last year, but there is still plenty of room for recovery. By the end of the period, the company had operated a total of 2,956 vehicles, including 1,535 lines, and had 227 cross-city and county passenger lines; 2) The company is actively expanding the new business of customized passenger transport, commuter buses, urban and rural buses, school buses, and automobile trade. Looking at it separately, ① passenger transport business sector: expanding the scale of customized passenger transport services, tightening the school bus service network, and speeding up the layout of urban and rural bus services, and achieving revenue of 147 million yuan/year over year; ② Automobile service sector: The fuel sales business continued to expand, selling 53.94 million liters of fuel throughout the year, while adding 183 charging terminals (in total 572), and selling 421 cars; ③ Commercial operation sector: vigorously promoting the transformation of commercial rental work at Haikou East Bus Station and Tunchang Bus Station to increase total annual rent revenue 7.55 million yuan . As of the end of the period, the stock business achieved operating income of 842 million yuan/year over year; however, it had not fully recovered, and achieved net profit of -69 million yuan in 2023.

The Haifen brand and procurement structure have all continued to be optimized, and the performance is steady, and the share continues to increase. Since the license was obtained and the opening of the business, the brand and procurement structure have continued to be optimized. According to the company's announcement, as of November 2023, Sea Travel Duty Free had 1,072 brands, and the number of online fragrance brands reached 163, and nearly 280 brands entered the outlying islands duty-free market for the first time or exclusively; as the company's main supplier, the company's total procurement volume from January to November 2023 was 70.11% (77.53%/68.43% in 2021/2022). At the same time, the company also showed a downward trend. Direct procurement relationships have been established with 743 brands including Montblanc and Piaget, and supplier reserves have been further enriched. According to the company's announcement, Sea Travel Duty Free accounted for 3.58%/7.84%/8.30% of the Hainan outlying islands duty-free market from January to November 2021, 2022, and the share increased steadily. Among them, operating income/net profit to mother was 3,940 million yuan/139 million yuan in 2023 (3.374 billion yuan/61 million yuan for the same period in 2022). During this period, the Huating project lost 208 million yuan and exchange losses of 37 million yuan. Among them, January-November 2023:1) achieved revenue of 3.625 billion yuan and net profit of 137 million yuan; Sea Travel Duty Free achieved operating income of 3,558 million yuan and net profit of 235 million yuan, contributing to the main performance; at the same time, due to the tightening of cross-border e-commerce policies, Sea Travel Heihu continued to lose money. Sea Travel Duty Free plans to transfer 51% of its shares in Heihu; 2) gross margin was 19.95%, compared with 2021 (17.47%) and 2022 (16.27%).

The tax-free purchase plan for sea travel will be adjusted again. During the reporting period, due to the overall impact of the duty-free market on the outlying islands of Hainan, the performance of the Sea Travel Duty Free in November and December fell short of expectations. The company issued an announcement to make some adjustments to the proposed acquisition of the sea travel tax exemption. The company plans to acquire 100% of Sea Travel's tax-free shares through the issuance of shares and cash payment. The transaction price was reduced from the previous 40.8 billion yuan to 2.04 billion yuan, of which the cash consideration was 310 million yuan and the share consideration was 1.73 billion yuan (the issue price of issuing shares was 12.86 yuan/share, previously 11.09 yuan/share). The supporting capital raised was adjusted from no more than 1.4 billion yuan to no more than 740 million yuan. The remaining elements of the transaction remained unchanged.

At the same time, Sea Travel Tax Exemption also adjusted its performance promise, promising that the net profit for 2024-2026 will not be less than 1.61/182/202 million yuan (not including Huating Project's underlying assets; the original profit promise was the company's overall net profit of 326/4.80/587 million yuan).

Investment advice: The company is the leading passenger transport operator in Hainan Province. Sea travel duty-free ranks among the top duty-free operators in Hainan. Consumption return combined with the release of tax exemption policies has driven the company's rapid growth; performance flexibility is expected to be evident as travel resumes. If asset restructuring is implemented, the company's operating performance will be greatly enhanced. Assuming that Sea Travel completes the injection in 2024, considering the company's main business and performance in 2023, the company's 2024-2026 net profit is adjusted to be 1.82/2.10/227 million yuan. At the same time, considering the increase in the company's share capital brought about by the restructuring, EPS was 0.40/0.46/0.50 yuan/share, maintaining a “buy” rating.

Risk warning: The impact of e-commerce diversion has exceeded expectations; labor and rent costs have increased dramatically; industry competition has clearly intensified, and major asset restructuring has fallen short of expectations.