results miss our forecast

Huangshan Tourism announced its 2019 results: revenue fell 0.9% YoYto Rmb1.61bn and attributable net profit dropped 41.6% YoY toRmb340mn （Rmb0.47/sh）。 Dividend per share came in at Rmb0.11.

Given the repurchase of Rmb24.2mn of B shares, dividend payoutratio was 30.48%. In 4Q19, revenue and attributable net profit fell14.6% and 97.4% YoY to Rmb368mn and Rmb4.19mn. The 2019results missed our forecast due to a sharp decline in tourist traffic in4Q19.

2019 tourist traffic front-loaded; rising cableway utilization ratebrought incremental revenue. Tourist traffic to Mount Huangshanrose 3.6% YoY to Rmb3.5mn in 2019. It declined 7.8% YoY overSeptember–December due to easing of base effect from ticket pricecuts in September 2018. The number of visitors taking cablewaysand/or cable cars grew 10.3% YoY to 7.38mn in 2019. The number ofvisitors taking cable cars increased thanks to the popularity ofsightseeing cable cars in Xihai Grand Canyon. Excluding this, weestimate per-visitor cable car utilization rate at 1.8 times, which isconsidered high in the industry.

Gross margin improved; rising G&A expenses weighed on earnings.

In 2019, gross margin grew by 1.8ppt YoY to 56% as gross margins ofthe cableway and scenic management increased by 0.5ppt and 0.7pptYoY to 87.2% and 83.6%. G&A expenses rose 15.6% YoY in 2019,driving its ratio by 2.7ppt YoY to 18.9% and weighing on earnings.

Trends to watch

Tourist traffic recovery slow despite easing COVID-19.

See page 3 for details.

Financials and valuation

As COVID-19 impact lingers longer than expected, we lower our 2020and 2021 EPS forecasts 50% and 13% to Rmb0.24 and Rmb0.57.

Huangshan A-shares are trading at 35.3x 2020e and 14.9x 2021e P/E.

Huangshan B-shares are trading at 20.3x 2020e and 8.6x 2021e P/E.

We maintain OUTPERFORM. Given low valuation, we leave TP atRmb10.25 （42x 2020e and 18x 2021e P/E with 20% upside） forA-shares. Given lower earnings forecasts, We cut TP 15% to US$0.99（28x 2020e and 12x 2021e P/E with 35% upside） for B-shares.

Risks

COVID-19 impact lingers longer than expected.