Backed by the Sichuan Tourism Investment Group, the advertising business is rich in resources. Established in 2000, Simei Media Co., Ltd. is positioned as “panorama, precision and communication” to provide customers with a full range of integrated marketing services. In 2008, the company joined the China 4A Association. In 2019, Sichuan Tourism Investment Group held Simei Media to integrate cultural tourism and develop collaboratively. The company provides customers with a full range of integrated marketing and communication services such as brand management, national media planning and agency, advertising creative design, entertainment content marketing, public relations promotion activities, outdoor media operation, and digital marketing. It has a matrix-based media resource layout and has cooperated with more than 200 media companies. Customer resources are abundant, covering automotive, Internet, e-commerce, gaming, finance, travel, FMCG and other industries.
The macroeconomic recovery is expected to drive the advertising business to basically reverse the upward cycle. The performance of the advertising industry is influenced by macroeconomics. The pandemic since 2022 has caused repeated macroeconomic fluctuations, leading to a decline in advertising demand. With the end of the epidemic, advertising spending across the market has entered a period of shock before recovery, and is expected to rise after entering the recovery range. Advertising is the company's basic market, and the company is actively expanding advertising business such as brand marketing, live e-commerce, etc.
A strategic partnership was reached with Huazhang Smart Spectrum to help monetize big AI models in the media field. Simei Media and Zhipu Huazhang have signed a “Strategic Cooperation Agreement”, which will explore various media business areas, including media, digital people, intelligent writing, etc., and fully explore the commercialization model of the big model developed by Zhipu Huazhang. In the future, with the further deepening of business cooperation between the two parties, it is expected to have a positive impact on the company's business development.
Strategic cooperation with Comfort Hotel Group, a subsidiary of Sichuan Tourism Investment, to promote the development and implementation of integrated cultural tourism industries is expected to contribute incrementally. Established in 2021, Comfort Hotel Group is a subsidiary of Sichuan Travel Investment, managing 167 hotels with over 30,000 beds. The company developed strategic cooperation with Comfort Hotel Group and set up the cultural tourism e-commerce service platform “Comfort Travel”. It plans to cooperate on cultural tourism product reshaping and digital integration of product promotion and sales, as well as cultural tourism e-commerce services and celebrity brokerage. This partnership is expected to promote mutual promotion and integration of Comfort Hotel Group's cultural tourism resources with the company's integrated marketing resources, opening up space for the company to achieve exhibition in the cultural tourism industry.
Profit forecasts and investment suggestions: In addition to AI actively empowering businesses such as advertising, film and television reading, etc., there is broad space for cultural tourism, local life, etc., and new business strategic planning is underway. The company is expected to achieve operating revenue of 60/81/105 billion yuan in 2023-2025, an increase of 44%/34%/30% over the previous year; achieving net profit of 1.8/25/ 34 million yuan, a year-on-year change of 143%/42%/33% over the previous year. Considering that the company's net profit is expected to be in a period of rapid growth in 2023-2025, we gave the company 35x PE in 2023, corresponding to a target market value of 6.2 billion yuan and a corresponding target price of 11.43 yuan. There is still plenty of room. We are optimistic that the company's plight will reverse. Shareholders and management have strong business momentum, clear strategic plans, first coverage, and a “buy” rating.
Risk warning: risk of macroeconomic fluctuations; risk of strategic cooperation falling short of expectations; risk of tighter industry regulation.