FY17 performance meets expectations

Shengguang shares announced its 2017 results: operating income was 11.295 billion yuan, up 3.48% from the same period last year; net profit attributed to the parent company was-184 million yuan, down 130.12% from the same period last year, corresponding to earnings per share of-0.11 yuan. The large performance loss is mainly due to the provision for impairment of goodwill and provision for bad debts of accounts receivable totaling 682 million yuan.

Trend of development

Revenue and profitability of traditional media agency business continue to be under pressure, but digital marketing business is growing steadily. Due to intensified competition, the business of some subsidiaries was hit, and the revenue of the company's traditional media agency business decreased by 8.34% compared with the same period last year. In order to maintain revenue scale and market share, the company took the initiative to compress profit margins, and the gross profit margin of the media agency business dropped sharply to 3.5% from 12.9% in 2016. However, the company's digital marketing business maintained rapid growth, with revenue up 34.9% year-on-year and gross profit margin falling slightly, from 19.3% to 16.1%.

The performance of the subsidiary falls short of expectations, and the risk of goodwill impairment still exists. The company set aside 197 million yuan for goodwill impairment in 2017, mainly due to the poor performance of Shanghai Kaida, Provincial Guang Pioneer and Provincial Guang Hezhong. At present, the company's net goodwill is 2.05 billion yuan, accounting for 40% of the company's net assets, including Shanghai Kaida, Shanghai Jintuo, Shanghai Chuanyang and so on.

Taking the initiative to adjust the business is expected to regain the momentum of growth. During the reporting period, the company transferred and disposed of Shanghai Yarun, made a provision for 298 million of its receivables for bad debts, and took the initiative to reduce its subsidiaries in the mud period; at the same time, the company acquired Shanghai Tuochang and actively carried out digital marketing business. layout of the industrial chain to subdivide the market and maintain a stable income. Looking to the future, the company is expected to benefit from the recovery of the industry and its own strategic transformation, and return to the track of steady growth.

Profit forecast

Taking into account the continued pressure on the company's gross profit margin and business adjustment, the 2018 net profit is reduced by 19.0% to 396 million yuan, corresponding to EPS 0.23 yuan, and the introduction of 2019 EPS forecast of 0.25 yuan.

Valuation and suggestion

At present, the company's share price corresponds to 2018 / 2019 / 20 / 20 / 2019 / 20 / 20 / 20 / 20 / 2019 / 20 / 20 / 20 / 20 / 2019 / 20 / 20 / 2019 / 20 / 20 / 2019 / 20 / 20 / 2019 / 20 / 2019 / 20 / 2019. We cut our target price by 22.4% to 4.5 yuan, which is 3.22% lower than the current share price, corresponding to an 18-year price-to-earnings ratio of 20 times.

Risk.

Goodwill impairment risk, the company's business transformation progress is lower than expected.