Phoenix Satellite TV announced its results for fiscal year 2012, with operating revenue of HK $4.336 billion and operating profit below market expectations of 3.1%. This is mainly due to the expansion of new media and outdoor media business, resulting in a 43.1% increase in sales, general and administrative expenses compared with the same period last year. Net profit exceeded market expectations by 8.4% to HK $833 million. Taking into account the high-quality content shared within the group and the expansion of the audience, we believe that its multimedia business can produce synergies. In anticipation of economic recovery, we expect Phoenix Satellite TV to grow faster than its domestic counterparts in 2013.

Support the main points of rating

In the case of macroeconomic recovery, we should be cautiously optimistic about the growth of advertising spending. With the recovery of the global economic climate, China's economy also showed signs of recovery in early 2013, which we believe will help maintain the steady growth of the company's TV advertising spending above the industry average.

The company beats its peers with high-quality content configuration and brand sharing within the multimedia group. Phoenix Satellite TV aims to provide high-quality programs and services to highly educated and high-income viewers, which helps offset some of the economic fluctuations. In addition, the new media business helps to expand the audience rating of the radio and television business.

With the strengthening of outdoor advertising market regulations in 2013, the industry leader will become stronger. We expect the regulation of the outdoor advertising market to be strengthened in 2013, as the introduction of regulations will have the greatest impact on less competitive competitors in the industry. We believe that a regulated market will benefit PMM, the industry leader, as it can take advantage of its LED screen resources and brand influence.

Main risks faced by rating

The slowdown in economic growth has had a negative impact on the advertising market.

The growth of paid services has slowed as a result of the transition from traditional wireless value-added services to 3G services. Valuation

We maintain a price-to-earnings ratio of 16 times our historical average and raise our target price to HK $3.34 based on 2013 earnings of HK $0.209 per share. Reiterate the buy rating.