Performance review
1Q22 performance is basically in line with our expectations.
The company announced 1Q22 results: 1Q22 revenue of 520 million yuan, down 4.3% from the same period last year, slightly lower than we expected, mainly due to the repeated 1Q22 epidemic in Beijing, the decline of traditional cable TV business is higher than we expected. The net profit was 97.69 million yuan, turning losses to profits compared with the same period last year, deducting the non-return net loss of 8.78 million yuan, and the profit in the same period last year was 9.995 million yuan, which was basically in line with our expectations, mainly because the change in the fair value of financial assets such as Guigang network held by the company was slightly higher than we expected.
Trend of development
The traditional cable TV industry continues to suffer from the impact of pan-entertainment, and 2Q22 may still be repeatedly affected by the epidemic in Beijing. With the fierce competition in IPTV, OTT and network video industry, the viewing habits of traditional cable large screen users continue to shift to mobile and intelligent large screen. According to the Ministry of Industry and Information Technology, the total number of 1Q22 IPTV users reached 360 million, a net increase of 11.21 million over the end of 2021, while according to the National Radio and Television Industry Statistical Bulletin 2021, the actual number of cable TV users in the country was 204 million, down 1.45 percent from the same period last year. We believe that the size of traditional cable TV subscribers may show a downward trend in the short term. 1Q22's revenue continued the decline of the previous three quarters, down 4.3% from a year earlier. Looking forward to 2Q22, considering the repeated epidemic in Beijing, we expect that the company's traditional cable TV business may still be affected to some extent, and its short-term operation will be under pressure.
1Q22 gross profit margin has declined compared with the previous month, due to the fair value change income brought about by the rise in the share price of Guiyang-Guangzhou network. On the gross margin side, 1Q22 gross profit margin is 10.4%, down 1.0ppt and 1.7ppt respectively compared with the same period last year and month-on-month. At the expense end, the operating expense rate of 1Q22 is relatively stable, and the sales rate, management rate and R & D rate are down 0.2ppt, 0.2ppt and 0.4ppt respectively compared with the same period last year. Due to the large increase in the share price of Guiguang Network, which is the financial asset held by 1Q22, the company realized a net income of 105 million yuan in fair value changes in the current period, and the net profit returned to its mother turned from a loss to a profit compared with the same period last year. However, excluding non-recurrent gains and losses such as government subsidies and net income from changes in fair value, the net profit deducted from non-return decreased to a loss to a certain extent compared with the same period last year.
The company's business technology innovation and business model development need to be continuously promoted. We believe that the resource integration and business upgrading of the radio and television industry will continue to advance in 2022, and the "national network integration" is expected to accelerate the construction of the radio and television 5G network and the maturity of 5G applications. Emerging businesses such as media technology platform, ultra-high definition video, self-made copyrighted content and smart city have strong potential for development. The company also said that it plans to actively do a good job in 5G number preparation, user promotion and combination marketing. We suggest that we should pay attention to the commercial progress of 5G in the radio and television industry and the development space of the company's new business related to 5G.
Profit forecast and valuation
We keep our profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to 39.0 times 2022 earnings and 29.4 times 2023 earnings. Maintain a neutral rating and target price of 7.30 yuan, corresponding to 35 times 2022 price-to-earnings ratio and 26 times 2023 price-to-earnings ratio, 10.2% downside from the current 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.
