2017 annual performance is in line with expectations
Beiba Media announced its annual results in 2017: operating income was 4.09 billion yuan, up 17.0% from the same period last year; net profit attributed to the parent company was 103 million yuan, down 12.6% from the same period last year, corresponding to 0.13 yuan per share. The company will pay a cash dividend of 0.1 yuan per share. Gross profit margin fell 2.4ppt, due to digital media and driving school business, as well as an increase in the share of car distribution revenue; during the period, the expense rate fell 1.3ppt, reflecting proper cost control.
Trend of development
The operation of bus charging stations has entered the harvest period. By the end of 2017, the company had put into operation 481 bus charging piles (450kW double guns), serving more than 3000 electric buses, with an income of 49.39 million yuan and a gross profit margin of 32.8%. The third phase of the charging station project is expected to start this year, and the bus Group will promote about 12000 electric buses by 2020. We believe that the expansion of the operation scale and the improvement of utilization rate will prompt the charging business to significantly contribute to profits in 2018 (the company expects charging revenue to be no more than 300 million yuan).
Digital media is a drag on advertising gross margins, and new contracts guarantee steady growth. Advertising revenue edged up 1.8 per cent year-on-year to 473 million yuan, while gross profit margin fell 2ppt to 75.7 per cent, mainly due to losses in the digital media business. Body advertising remained robust, and the number of double-deckers increased by 66 per cent to 1547, which will lay the foundation for performance growth after it is gradually put into operation. The company has signed a new car body advertising right contract with the bus Group for a period of 10 years, and the cost basically maintains the original level, which helps to maintain the stability of the profit margin of the advertising business.
Driving school business performance is under pressure. Revenue fell 25% year-on-year, and gross profit margin fell 3.3ppt to 32.6%. The impact of the policy of self-study direct examination and the evacuation of migrant population in Beijing continues, and the enrollment of driving schools has further dropped by 15%. We believe that the business of driving schools can hardly be improved in the short term.
Profit forecast
Due to the decline in driving school business, we slightly reduced the 2018 net profit forecast by 4% to 142 million yuan, introducing the 2019 forecast value of 173 million yuan.
Valuation and suggestion
At present, the company's share price corresponds to 2018 Greater 1930 Compact 25x Pmax E. We maintained our recommended rating and lowered our target price by 14.0% to 6.45 yuan due to downgrades in performance and industry valuations, which is 21.7% higher than the current share price. Based on the segment valuation method, the target market value is 5.2 billion yuan.
Risk
The progress of the construction of charging stations has slowed; the gross profit margin of the advertising business has been under pressure; and the enrollment of driving schools has declined.
