Go to battle lightly and focus on the direction of advantage. TV, radio and media were the first companies to land on A-shares with the media business. In the past, advertising and cable networks were the main business, which accounted for about 70-90% of revenue. In 2020, the company participated in the establishment of China Radio and Television Network Co., Ltd. with equity investment from some cable network companies. The cable business was no longer included in the company's consolidated report, and the company clarified the strategic development direction of “cultural tourism+investment”. The new chairman of the company is experienced and innovative in the cultural tourism sector. Furthermore, the company's cable media business was announced, and most of the company's burden was reduced. The number of employees has been continuously reduced since last year, and operating costs will be reduced and operational efficiency will gradually improve.
The venture capital business turned into a profit cow. The subsidiary Dachen Venture Capital (including Dachen CaiZhi) is an established VC/PE leader in China. Profits have exploded since this year. In the first half of the year alone, Dachen Innovation contributed 620 million yuan to Dachen CaiZhi's profit. Dachen's management team's more than 20 years of venture capital experience and internal iterative optimization of the “Fundraising Management and Refund” process have accumulated a professional and steady market reputation and brought Dachen an excellent return on exit. Following the listing of 18 companies that set a record high for the company last year, Dachen has invested in 13 IPOs since this year. Furthermore, the company has invested in 62 “specialized, special and new” enterprises, and the shareholding ratio of more than half of the companies reached 5%. Seventeen “specialized, special and new” companies have completed listing or pre-listing disclosure, demonstrating the company's deep and sophisticated project reserves. Dachen Chuanghong Fund raised 6.8 billion yuan this year, with an initial investment amount of 5.5 billion yuan, continuing its excellent fund-raising performance.
Focus on building the largest cultural tourism investment platform and operating brand in Hunan. The company has long adhered to the concept of operating the tourism and hospitality industry with a cultural industry. Its five-star hotels and Window of the World tourist attractions quickly recovered after the epidemic was controlled, showing strong operational resilience and profit sustainability. Furthermore, with the help of Mango IP and media resources, the company has begun to create cultural tourism projects with its own characteristics. The company's cultural tourism strategy has received key support from Hunan Province's 14th Five-Year Cultural Tourism Plan.
The media business gradually stabilized, contributing to the company's main revenue scale. The company's advertising business recovered relatively quickly in '21. Yunhong Communications achieved revenue of 1.56 billion yuan in the first half of the year, +23% year on year, and a loss of 8.32 million yuan, a sharp decrease from the same period in 2020. Furthermore, the company's game business maintained steady growth in revenue and profit, and net profit was basically stable at over 100 million yuan per year.
Investment Rating and Valuation: We forecast the net profit of the company's 2021E, 202E and 2023E to be 496 million, 639 million and 796 million yuan respectively. The corresponding EPS will be 0.35, 0.45 and 0.56 yuan respectively. Using the segmented valuation method (SOTP), the TV, radio and media venture capital sector was given a PE multiplier of 21 and the cultural tourism sector a PE factor of 51 based on the price-earnings ratio of companies comparable to the industry. It is predicted that the target market value of TV, radio and media 2021E will be 10.6 billion yuan, corresponding to the target stock price of 7.49 yuan, covering the “buy” rating for the first time.
Stock price catalyst: Venture capital project withdrawals exceeded expectations, cultural tourism projects made new breakthroughs, offline advertising business gross margin increased
Risk factors: Private equity investment institutions are affected by the regulatory authorities on fundraising methods and primary market financing policies in terms of fundraising side and project withdrawal; the continuation and repetition of the epidemic will have a negative impact on the company's high-speed rail advertising business, hotel and travel business.
