Investment suggestion

The company released its quarterly report for 2017 on the evening of October 24. In the first three quarters of 2017, total operating income reached 7.015 billion yuan, an increase of 4.10% over the same period last year. The net profit attributable to shareholders of listed companies was 172 million yuan, down 59.78% from the same period last year. Net profit belonging to shareholders of listed companies after deducting non-recurring gains and losses was 154 million yuan, down 62.60% from the same period last year. The company's revenue remained stable and slightly increased, but profits fell sharply, in line with the company's previous performance forecast for the three quarterly reports. The reason for the decrease in corporate profits is that some subsidiaries with weak anti-risk ability have set aside some goodwill impairment. At present, Kaida and Yarun still have a high goodwill balance, and the goodwill impairment pressure of the company still exists. Combined with the complete layout of the company's integrated marketing and communication industry chain and the trend of big data business, while Shengguang still has strong advantages in customers, technology and media, the company's performance is still expected to achieve growth. We predict that the company's EPS from 2017 to 2019 will be 0.06,0.24,0.39 yuan respectively, corresponding to the current stock price PE of 108x, 26x and 16x respectively, maintaining the "recommended" rating.

The company's revenue remained basically stable, and the traditional media pulled down the comprehensive gross profit margin.

The company's overall revenue in the first three quarters of 2017 reached 7.015 billion yuan, a slight increase compared with the same period last year. Single-quarter revenue reached 2.542 billion yuan, an increase of 10.23% over the same period last year, with a relatively good performance in the third quarter. In terms of gross profit margin, the comprehensive gross profit margin was 14.06%, down sharply from 19.59% in the first three quarters of last year, down 5.53 percentage points, and slightly lower than the 14.95% reported in the semi-annual report this year. As a whole, the decline in gross profit margin of traditional media agents since the first half of this year has been continued, and the company's comprehensive gross profit margin has been dragged down to a certain extent. From the perspective of the strategic layout of the company, the company complies with the trend of media changes and takes big data and the digital marketing plate as the main driving factors, but the decline of the performance of traditional media agents basically offset the rise of the digital marketing plate.

The company's expense structure is relatively stable, in which the rate of financial expenses has declined slightly, partly due to the fixed increase of funds and the reduction of interest expenses.

Due to the pain of the transformation of traditional media, some subsidiaries are faced with impairment in their weak anti-risk ability.

The company's digital marketing field is outstanding, which can generally meet or exceed expectations, but also because of the changes of the audience media, the space of the traditional media has been further eroded, and the anti-risk ability of some traditional media subsidiaries is weak. The company has disclosed the decline in the performance of its subsidiaries Kaida and Yarun in half a year, Kaida will probably not be able to fulfill its performance promise this year, and Yarun will make a negative profit in the first half of the year. As a result, the company reported an impairment of about 100 million in goodwill in three quarters.

After the impairment of some goodwill, Kaida and Yarun still have a combined goodwill balance of about 300 million, while the company's goodwill balance is about 2 billion. At present, other subsidiaries are in good condition, but the goodwill impairment pressure still exists.

Risk hints: subsidiary business risk, goodwill impairment risk, core customer loss, macroeconomic slowdown, lower-than-expected integration effect, big data platform construction is not as expected, etc.