Events:

Huasu Media announced the 2016 annual report and the first quarterly report of 2017, with operating income of 3.081 billion yuan in 16 years, an increase of 7.79 percent over the same period last year. Net profit belonging to shareholders of listed companies was 602 million yuan, up 12.87 percent over the same period last year, or 0.42 yuan per share. In the first quarter of 2017, the operating income was 711 million yuan, an increase of 5.48% over the same period last year. The net profit belonging to shareholders of listed companies was 149 million yuan, up 1.51% from the same period last year. The annual profit distribution plan of the company in 2016 is 1.40 yuan (including tax) for every 10 shares, accounting for 33.32% of the net profit belonging to the shareholders of the listed company.

Main points of investment:

The company's main business has developed steadily, with a high growth rate of interactive TV and Internet TV.

The company's digital TV business revenue increased by 3.4%, and its share of total revenue decreased by 1 percentage point to 23.62%. The higher growth rates are mainly interactive TV and Internet TV. Interactive TV business revenue grew by 10.71%, accounting for 15.93% of total revenue (15.51% in 15 years), Internet TV revenue 138 million, revenue growth rate of 59.89%, continued to maintain rapid growth.

The number of users continues to expand, ranking in the first camp of the development of the national new media and triple play industry.

Internet TV terminals cover more than 100 million units and activate more than 80 million on-demand users (80 million users in 15 years and 32 million active users). Mobile TV covers 56 million users and accumulates 16 million paying users (30 million mobile TV users and 10 million cumulative paying users in 15 years). Interactive TV provides interactive TV content, value-added services and solutions for radio and television networks in more than 20 provinces and more than 100 cities across the country, covering 90% of the country's radio and television enterprises, and the number of users nationwide increased by 21.43% over the same period last year.

Both the company's gross profit margin and net profit margin have increased.

The company's gross profit margin in 16 years was 44.89%, an increase of 0.64 percentage points over 15 years, thanks to the increase in the proportion of interactive TV with higher gross profit margin. The company's three expense rates are well controlled, and the expense rate in 16 years is 3.4% higher than that in 15 years, which is lower than the income growth rate. The company's monetary funds have reached 7.35 billion yuan in 16 years, and the financial expense rate has dropped greatly. In the quarterly report, the company's gross profit margin and net profit margin increased by 0.33 and 1.49 percentage points respectively.

The company's 17-year business plan focuses on product innovation and content aggregation.

In product innovation, the company will further optimize the 4K intelligent terminal and "enjoy" cross-screen product user experience, forming a differentiation advantage with IPTV, OTT TV and other competitive products. Using big data tools such as "thousands of people and thousands of faces", we continue to launch personalized products to meet the needs of the elderly, children and other segments of the population. We will continue to introduce and expand smart all-in-one partners and strengthen the integration and coordination of smart home products with Wasu TV, broadband and clients, so as to inject a driving force for the sustained growth of Wasu mass system.

In the content construction, it will transform from a single procurement mode to a combination of platform procurement and aggregation, which not only meets the rich needs of users of this network, but also strives to enhance the characteristics of national market content differentiation. At the same time, the company will strengthen the production of original content and create an innovative business model of PGC (professional production of content) + UGC (user-produced content). In the past, in the new media platform, Wasu's head investment was mainly based on 80% purchase. In the next planning, the company proposed that 1:1, that is, 50% of the content is content procurement, and 50% of the content is for the cooperation between PCG content and UGC content, so as to achieve a content pool with 1x 1 greater than 2, so as to really enhance the competitiveness of the platform.

The New Media Business Department was established in 17 years to integrate and develop various new media business lines.

One of the company's major moves this year is to integrate the two original divisions of Internet TV, PC and mobile phones into a big new media division. At present, the number of OTT users of Huasu Media has exceeded 100 million, the number of mobile phone users has exceeded 56 million, and the UV of PC has also exceeded 40 million. It is precisely because Huasu has such large-scale users in the past few years that it drives organizational integration, structural integration and business integration. At the Huasu Media New Media Operation and Development Forum and Huasu New Media Strategy Conference on April 20 this year, the company expressed the hope that through the unity of the market, the unity of products and the unity of users, the goal of "1: 1" is greater than 2.

Huasu new media open platform to achieve win-win cooperation.

At this press conference, Huasu Media, together with Sina Weibo Corp, Letv Sports, Baidu, Inc. Video, Sony Group Corp China, Sohu.com Ltd Video, 360Video, Worldwide broadcast, PGC representatives and other partners jointly witnessed the release of Huasu 2017 new media "strategic partner" plan. For example, in this cooperation with Sina Weibo Corp, Huasu Media and Sina Weibo Corp signed a "TV Social Co-Building and Cooperation" agreement, jointly creating a large-screen social product of "watching and chatting", opening a new era of one-stop integration of content and interaction in an all-round way. Sina Weibo Corp exports short video content related to popular movies and television to Wasu, which opens a channel in Sina Weibo Corp to output huge content resources, and finally forms a mutually beneficial commercial value advertising sharing model.

Profit forecast.

It is estimated that the net profit attributable to the parent shareholders of Huasu Media from 2017 to 2019 is 702 million, 808 million and 919 million respectively, and the earnings per share are 0.49,0.56 and 0.64 yuan respectively, and the price-to-earnings ratio of the previous share price is 33.1,28.8x and 25.3x respectively. Maintain the recommendation.

Risk hint.

1) the risk of a major change in the policy of the Internet TV industry; 2) the risk of asset injection falling short of expectations.