Live broadcast is the fastest growing area of the Internet industry, with CAGR exceeding 61% in 17-19.
Mobile video has shown rapid growth in the past year, and video and video-like content platforms represented by Tencent, iQIYI, Inc. and Youku have begun to break out; at the same time, the unlimited traffic package of telecom operators began to be put on the market this year, these two factors have jointly promoted the rapid development of the live broadcasting industry. The market capacity of live video streaming exceeded 20 billion in 2016 and is expected to exceed 80 billion in 2019, equivalent to the current mobile game market capacity. The industry is accelerating its concentration, forming first-tier platforms led by Momo Inc, YY, Yingke and Zanthoxylum bungeanum, as well as many second-tier platforms. We expect webcast to be more similar to mobile games. Within 2 years, there will be 3-5 major platforms and dozens of subdivided platforms, and companies of all sizes will have room for survival, which is different from the dominant situation in the fields of group buying and taxi-hailing.
Sky Pigeon Interactive has successfully laid out the mobile terminal by virtue of its accumulation in PC live streaming.
9158 used to be the founder of PC LVB, but it was capitalized later than YY and did not seize the opportunity of mobile Internet. However, the company has accumulated rich operational experience in many years of operation practice, including the concept of gaining users based on third-and fourth-tier cities without capital drive, experienced distribution agent teams all over the country, and interactive + companion customer experience goals. With these accumulations, the company completed a number of mobile APP breakthroughs in 2016. As of April 2017, Meoway has become the first echelon APP of webcast, and several APP such as Crystal Live and 9158 have also performed well.
Maintain good growth, highlight your own style, and actively layout value-added services
The company maintains its own maverick style in the live broadcast field: do not burn money, do not rob front-line users, attach equal importance to growth and profit, and continue to implement the concept of many-to-many and companionship. As a result, the company may not be the fastest growing company in the field in the next two years, but it is the most robust company. At the same time, the company's strategic investment in Zanthoxylum bungeanum (ranked fourth), actively expand the Southeast Asian market, accumulate new game products and teams, and develop a variety of profitability of channels (the profitability of Internet financial enterprises is also improving day by day).
Investment suggestion
We predict that the company's revenue will grow by 35% and 30% from 2017 to 2018, and its net profit will grow by 73% and 57% respectively, with a corresponding EPS of HK $0.34 and HK $0.48, respectively.
Considering that 1) the company enjoys the inertia of the rapid growth of the live broadcast industry, 2) the company's unique position based on third-and fourth-tier cities, and 3) strong cash flow and very low financial leverage, it is given a buy rating with a reasonable valuation of 8 yuan in 6 months, which corresponds to 23 times and 16 times of PE in 2017 and 2018.
Risk hint
1. The vicious competition of the live broadcast platform leads to the decline of the company's gross profit margin.
2. The national regulatory policy tends to be strict, which brings periodic restraint to the industry.
3. The systemic risk of Hong Kong stocks: the Fed's interest rate hike to cause funds to withdraw from Hong Kong stocks has a negative impact on the market.
