Key points of investment
Revenue growth has slowed, and performance has fallen short of expectations. In the first half of 2017, the company achieved operating income of 4.473 billion yuan, an increase of 0.91% over the previous year; net profit attributable to shareholders of listed companies was 190 million yuan, a decrease of 26.62% over the previous year; net profit attributable to shareholders of listed companies after deduction was 180 million yuan, a decrease of 27.84% over the previous year. The company's performance fell short of expectations, mainly due to low revenue growth, which led to a sharp year-on-year decline in operating profit. The company expects net profit of 171-299 million yuan from January to September 2017, a decrease of 60%-30% over the previous year.
The digital marketing business is growing steadily. During the reporting period, the company's digital marketing business achieved revenue of 1,635 billion yuan, an increase of 12.52% over the previous year, accounting for 36.54% of the total revenue, which is the second largest source of the company's revenue. The company's digital marketing business has become a mature integrated business segment covering agency, planning, creative and programmatic purchasing, and is seamlessly connected with the company's existing business segments such as management consulting, brand management, and media agency. The company's marketing big data alliance has brought together top big data service providers at home and abroad to create more than 100 kinds of diverse and customized big data products, so that the company's brand marketing, digital marketing and other service capabilities have been greatly improved in a short period of time, and customer stickiness continues to increase.
Acquire Shanghai Tuochang to strengthen mobile marketing capabilities. The company is actively engaged in outreach and expansion, so that the business map of marketing communication continues to be enriched. In 2017, the company plans to acquire 80% of Shanghai Tuochang's shares for 528 million yuan. Tuochang focuses on the accurate placement of mobile internet advertisements. It has the Changthink advertising platform and has provided a full range of advertising services to advertisers such as “Clan Wars” and Vipshop. The advertising media resources owned by Shanghai Tuochang and the company's existing media resources improve the quality of the company's marketing services. The acquisition will improve the company's industrial chain layout and enhance the company's competitiveness in the field of mobile marketing.
The “endogenous+external extension” two-wheel drive creates a marketing platform for the whole industry chain. The company is focusing on building a marketing ecosystem for the entire industry chain, forming six major business segments including brand marketing, digital marketing, media marketing, content marketing, scene marketing, and free media. The province adheres to a two-wheel drive strategy of endogenous growth and extension. Through strengthening its own business capabilities and mergers and acquisitions integration, the province continuously improves all links in the industrial chain, achieves vertical and horizontal expansion of the industrial chain, strengthens synergies between various business fields, and builds a leading local international marketing and communication group.
Risk warning. Technological changes affect risk on the marketing industry pattern; risk of mergers and acquisitions integration.
Profit forecasts, valuations, and investment ratings. Considering the impact of the slowdown in the company's revenue growth rate, profit margins have declined. We lowered the company's 2017-2018 EPS forecast (after dilution) to 0.36/0.41 yuan (original forecast of 0.80/1.00 yuan), and added the 2019 EPS forecast to 0.46 yuan. The current price is 6.47 yuan, and the corresponding PE is 18/16/14 times. Considering the company's leading position in the industry and the current valuation level of the advertising and marketing sector, we gave the company 20 times PE in 2017, with a target price of 7.6 yuan to maintain the “increase in holdings” rating.