Event Overview

On the evening of August 29, 2021, Jiecheng shares released a semi-annual report that the company achieved 1.858 billion yuan in revenue in the first half of the year, an increase of 40.41 percent over the same period last year, and a net profit of 303 million yuan, an increase of 137.14 percent over the same period last year.

A comprehensive focus on the new media copyright business, in-depth development of strategic cooperation companies have comprehensively focused on the new media copyright business mainly carried out by Jiecheng China Vision, and the proportion of revenue has increased from 75.50% in 2020 to 89.79% in the first half of 2021. In the first half of the year, the company's new media copyright operation and distribution business realized revenue of 1.668 billion yuan, an increase of 63.00% over the same period last year, and a net profit of 314 million yuan, an increase of 16.65% over the same period last year. At the same time, under the influence of the strengthening of intellectual property protection policy, the operating environment of the company's copyright operation business has become better. The company has Tencent, Youku, iQIYI, Inc., Mango and other video terminals, China Mobile Limited, China Telecom Corporation, China Unicom and other operators, as well as Huawei, XIAOMI and other hardware providers and other high-quality customers, and maintained a good long-term strategic cooperation; in May 2020, signed a three-year cooperation agreement with Mobile Migu, in-depth To C joint operation mode cooperation. In September 2020, the company introduced Tianjin Jinmi, a subsidiary of XIAOMI, as its strategic shareholder, and carried out in-depth business cooperation with XIAOMI.

The quality of financial statements continued to improve, and the new copyright procurement scale reached a record high. the financial reporting quality of the company improved significantly. The accounts receivable of the company in mid-2021 was 1.032 billion yuan, compared with 1.605 billion yuan at the end of 2020. the payback situation in the first half of the year is better. The expense rates of 2019, 2020 and 2021H1 decreased significantly, with sales expense rates of 3.74%, 4.03% and 2.74%, management expense rates of 4.49%, 6.66% and 4.77%, and financial expense rates of 5.46%, 5.15% and 3.17%, respectively. 2021H1, the company's film and TV series copyright intangible assets increased by 1.317 billion yuan, and 2018H1, 2019H1 and 2020H1 increased by 11.48,12.43 and 468 million yuan respectively. In recent years, due to industry rectification, the overall film and television copyright price is relatively stable, and the new copyright purchase amount reached a new high in the first half of the year, indicating that the company has further focused on copyright business, and the scale of the copyright database continues to expand.

Short video accelerates the development of film and television copyright protection, and the scarcity of copyright assets shows that with the continuous improvement of the state's protection of intellectual property rights, the scarcity of high-quality copyright assets will be further revealed. The copyright of film and TV series is the core of each major video platform to seize the use time of users, especially with the rapid rise of short video platform and the further growth of the number of intelligent terminals (VR/AR, car intelligent entertainment cockpit, etc.) audio-visual equipment in the 5G era, the value of the company's stock of high-quality film and television library will be significantly increased, and there will be huge room for realization in the future. Since the beginning of this year, we believe that the following important events have accelerated the process of copyright protection and value enhancement of films and TV dramas. (1) in April 2021, 53 film and television companies, 5 video platforms and 15 film and television industry associations jointly declared against the infringement of short videos, and the copyright Administration Bureau of the propaganda Department of the Central Committee of the Communist Party of China immediately responded. (2) on June 1, 2021, the newly revised copyright Law will come into force. (3) in August 2021, Tencent sued Douyin for infringement by "sweeping the black storm" and claimed 100 million yuan.

Investment advice: the fundamental dilemma reverses the "Davis double click", maintains and emphasizes the "buy" rating combined with the China report, and we adjust the company's profit forecast. it is estimated that from 2021 to 2023, the operating income will be 36.20,43.60 and 5.172 billion yuan respectively, and the net profit will be 6.21,7.94 and 964 million yuan respectively. The EPS is 0.24,0.31 and 0.37 yuan respectively, and the corresponding share price PE is 20,15,13 times respectively. Compared with the last rating, there are the following changes in our judgment on the fundamentals of the company: (1) the company's main business is to further focus on the film and television copyright business, accounting for 90% of the copyright revenue; (2) according to the company's announcement of August 26, 2021, the controlling shareholder signed the Voting intention Agreement, and the controlling stake will be transferred to Fuxiang Division, which has the background of state-owned assets such as Hainan Provincial Industrial Department, State Investment Group and Cinda Group. (3) the promotion of the commercialization of 5G and the protection of intellectual property rights have been continuously strengthened. We expect a major reversal in the company's fundamentals in 2021, with a "Davis double-click" expected to maintain and emphasize the "buy" rating.

Risk hint

The introduction of strategic investment shareholders is not as expected; the film and television copyright business is likely to be regulated; and the release time of China's 3D sound standard is still uncertain.