Hangzhou is key growth driver for 1H17, Lijiang/Jiuzhai growth flat

Songcheng reported its 1H17 earnings results last night and held a conferencecall this morning.

Songcheng's 1H17 total revenue increased by 17.4% yoy to RMB1.39bnfrom RMB1.19bn in 1H16. Core earnings of RMB523m, increased by22.4% yoy, slightly beat our 1H17 estimate of RMB507m.

The topline/bottomline growth is mainly driven by the recovery ofHangzhou Performance Show. The growth is mainly due to a differentbase due to G20 after 3Q16 (revenue yoy growth of 22.4% in 1H17 vs.drop of 2% yoy in 2016).

1H17 revenue growth of Lijiang and Jiuzhai projects was flattish. Webelieve that this is mainly due to the tightening regulation on tackling lowprice travel agencies by the China Tourism Bureau.

Growth of Six rooms also slowed down in 1H17, (13% yoy growth in1H17 vs. 195% yoy growth in 2016), which is mainly due to the moregovernmental regulations on live broadcasting industry in 1H17.

Conference call takeaway with the management

Online show business - Management believes that entry barrier for livebroadcasting business will be higher after more tightening regulationfrom the government in 1H17. As the market leader, they are confidenton Six rooms' sustainable growth in the long term.

Offline show business - Management confirms the strategy of adding twoself-owned projects and one revenue share model every year for the next3-4 years.

The company is in the process of establishing the second performanceshow theater for Lijiang and Sanya. The second theater is aimed forreleasing capacity issue during the peak season.

Management also updated on the upcoming offline projects' operationdate: Yangshuo in 1H18, Yichun in 2H17 (Oct 2017), Xi'an in End-2018or Early 2019, Shanghai in Early 2019, Zhangjiajie in 1H19, Foshan andAustralia (Gold Coast) in 2020.

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