Performance review

2021 performance is in line with our expectations

The company announced its 2021 results: revenue was 2.552 billion yuan, down 0.9% from the same period last year; net profit from home was 209 million yuan, up 27.4% from the same period last year; and net profit from non-return was 144 million yuan, down 18.0% from the same period last year.

Trend of development

Competition in the industry is still fierce, and the company's traditional cable TV business continues to decline. Due to fierce competition in the IPTV, OTT and online video industries, large screen users' viewing habits continue to shift to mobile. The company's cable TV viewing and maintenance revenue in 2021 fell 3.7% year-on-year to 917 million yuan, while information business revenue and channel transfer revenue also fell 1.8% and 9.6% year-on-year to 897 million yuan and 268 million yuan, respectively. In addition, we expect the company's 1Q22 to achieve year-on-year single-digit growth due to the repeated impact of the epidemic in Beijing and the continued impact of new media on the cable TV industry, but considering the increase in the share price of Guiguang Network, the company may recognize a certain amount of fair value change income.

Depreciation has a sustained impact on costs, and the recovery of profitability waits for the progress of business transformation. On the cost side, the company's overall gross profit margin was reduced by 2.0ppt to 12.4% due to the increase in the number of set-top box replacements. On the expense side, the company takes stronger control over management expenses, and the rate of management expenses is reduced by 0.5ppt to 4.0%. The increase of sales expenses and R & D expenses is also controlled at the single-digit level, and the cost control is more effective. Overall, the company's parent net interest rate rose 1.8ppt to 8.2% compared with the same period last year. However, excluding non-recurrent gains and losses such as government subsidies, investment income and impairment, the company's non-return net profit still declined to a certain extent compared with the same period last year. We believe that the cable TV industry is challenged by new business type's products, the stickiness of users is reduced, and the market share and profit level show a downward trend; while "open source" is of greater significance to the reversal of the company's profitability at the present stage. As a traditional cable company in areas such as radio and television 5G applications, the company is still in its infancy, and it will take time for the new strategy and business to mature.

Follow the progress of 5G's new business and wait for the company's business transformation and upgrading. In line with the fact that the radio and television industry will continue to focus on the national cable TV network integration and the integrated development of radio and television 5G construction in 2022, the company plans to actively carry out new business and expand new markets around the "center strategy" and make full use of the 5G enabling policy. strive to make new breakthroughs in 5G new business and promote the company's transformation, upgrading and innovative development, the company also said that it plans to actively do a good job in 5G number release preparation, user promotion and combination marketing. We suggest to pay attention to the commercial progress of 5G in the radio and television industry and the development of the company's new business related to 5G.

Profit forecast and valuation

Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 42.2 times 2023 / 31.7 times 2023. To maintain a neutral rating, taking into account the potential development potential of 5G commercial radio and television, we raise the target price by 20.3% to 7.3 yuan, corresponding to 35 times 2022 price-to-earnings ratio and 26 times 2023 price-to-earnings ratio, which is 16.9% lower than the current stock price.

Risk.

Epidemic control is more effective, national network integration and radio and television 5G commercial progress exceeded expectations, industry competition eased, user retention improved.