Main points of investment
The main income grew steadily, and the growth rate of net profit was in line with expectations. In the first three quarters of 2016, the company achieved an operating income of 1.801 billion yuan, an increase of 2.46% over the same period last year, and a net profit of 122 million yuan belonging to the owner of the parent company, an increase of 22.62% over the same period last year. The growth rate of the company's main income remains steady; the growth rate of net profit is in line with market expectations, mainly due to the fact that the growth rate of income during the reporting period is greater than that of costs, as well as the slowdown in the growth of depreciation of fixed assets and the substantial reduction in business tax revenue.
Network construction continues to move forward, and the construction of converged network has become a bright spot. The company continues to promote network coverage and two-way network transformation and construction. By the end of June 2016, the company had 5.6 million digital TV users, including 1.46 million HD interactive users, 6.56 million two-way network access users and 800000 personal broadband users. In July 2016, the company was listed as a pilot unit of the cable and wireless converged network of the State Administration of Radio, Film and Television to develop wireless network services through the construction of converged networks. In August, the company signed an agreement with Huawei to carry out the pilot project of "Radio and Television Convergence Network". We believe that the company continues to promote network construction, personal broadband, group private network, wireless network and other data services are expected to develop rapidly and will become a new revenue growth point for the company.
The transformation of converged media has been accelerated, and the layout of cloud management has been fully landed. The company in the content, network, services, applications and other areas of layout, the transformation of the "integration of media operators" strategy gradually landed. At the content level, it takes the subsidiary Silk Road Film and Television as the core to create an important platform for the content plate; sign a cooperation agreement with CCTV to introduce several sets of high-quality programs in the "CCTV area"; at the service level, the company has built 17 intelligent community projects. development of television medical care, television education and other service projects, cooperation with a number of counties and cities in Shaanxi Province to purchase projects At the data level, cooperate with Sinnet to operate Internet data services, carry out network interconnection cooperation with the five northwestern provinces; at the terminal level, cooperate with Shanghai Wenguang, a subsidiary of Oriental Pearl, to carry out high-definition interactive business.
Fixed increase in landing reserves of funds and food supplies, the follow-up reform of state-owned enterprises is worth looking forward to. The company is a pilot unit for the reform of cultural state-owned enterprises, and hopes to become a platform for resource integration and capital operation of Shaanxi radio and television system. In September 2016, the company's non-public offering plan was completed, raising a total of 755 million yuan for the construction of the radio and television network and the repayment of bank loans. The company carries out "Capital + Project" cooperation with Dingzeng participants:
Cooperate with Tongfang shares to carry out "smart city" business; jointly develop high-definition interactive business with Oriental Pearl; and cooperate with Jiecheng shares to build intelligent education cloud platform. We believe that the company in the fixed growth landing will enter a new stage of development, through "industry + capital" two-wheel drive, accelerate the transformation to "converged media operators".
Risk factors. Data business is lower than expected; cable reform and transformation is lower than expected; market competition risk.
Profit forecast, valuation and investment rating. Taking into account the dilution of the company's equity after the fixed increase, we give the company an expected EPS of 0.41max 0.52 yuan in 2016-2018 (the original 2016 forecast of 0.29 yuan), the current price is 14.35 yuan, corresponding to 2016-2018 PE is 51-37-29 times. Considering the industry the company is in and the future transition to converged media, we select Huasu Media and Radio and Television Media, which have a more in-depth layout of the transformation, as comparable companies, giving the company a single user market capitalization of 2000 yuan. It is estimated that the company will have 6.3 million users by 2017, corresponding to a market capitalization of 12.6 billion yuan in 2017 and a target price of 20.45 yuan, maintaining the company's "buy" rating.
