Huangshan:1H17core earnings in-line??topline slight miss

Bottomline up by 10% mainly driven by cable car business

    Huangshan announced its 1H17interim report today. The company reported thatcore net profit increased by 10% yoy to RMB192m in 1H17from RMB174m in1H16, in-line with our estimate of RMB194m, while top line was flattish yoy(RMB732m in 1H17vs. RMB726in 1H16). We believe the margin increase wasmainly driven by increasing contribution from its cable car business (enjoys grossmargin of c. 85%). We reiterate our Buy rating on Huangshang Tourism with TPof RMB22.4.

    Topline slight miss mainly due to more free tickets in 2Q

    Huangshan attracted 1.64million tourists in 1H17, yoy growth of 16%. However,the company's topline decreased by 1% to RMB732m in 1H17. We believe this ismainly due to more free tickets given in 1H17(note according to management,c.0.2million tourists enjoyed free tickets in 1H17). Last year, free tickets wereconcentrated in Q3, which was a heavy rainy season, therefore we believe growthshould recover in 2H, and keep our full year forecast of 3.9million tourist trafficunchanged.

    Cable car revenue grew 6% yoy to RMB220m in 1H17from RMB207m in1H16, mainly driven by rising tourism volume (cable cars attracted totaltourists traffic of 3million in 1H17, yoy growth of 8.28%).

    Revenue from tickets and travel service dropped 6%/13% yoy toRMB108m/RMB136m in 1H17(vs. RMB116m/RMB156m in 1H16). Webelieve this is mainly due to 1) more free ticket events in March and June2017and 2) reform of business tax to VAT (started in May 2016)

    . Revenue from hotel business delivered yoy growth of 1% to RMB255m in1H17from RMB253m in 1H16.