The performance of the annual report is in line with expectations, and "endogenous + + extension" promotes the rapid growth of digital marketing performance. 1) 100% of Zhuhai Shitong and 60% of Shanghai Zhiqu were merged in the fourth quarter of 2017, in which Zhuhai Shitong significantly exceeded the performance bet; 2) the excellent performance of the company's main part, on the one hand, benefited from the overall pick-up of TV media, the traditional TV media agency business performed steadily. The latest data from CTR show that in February 2018, the cost of TV media publications increased by 27.2% compared with the same period last year, which has achieved positive growth for six consecutive months; on the other hand, the performance of this part of digital marketing is excellent, and the company's digital marketing business is in a period of rapid expansion, and the annual results are expected to continue to be beautiful. In 2017, the operating income of the department reached 590 million yuan, an endogenous growth of 212.46%. 3) the company deepens the layout content production to strengthen the content marketing business, and content marketing is expected to become a new growth point of performance.
Both Zhuhai Shitong and Shanghai Zhiqu have exceeded their promised performance, and a reasonable incentive mechanism is expected to promote the performance to continue to exceed expectations. We believe that the company will benefit from two points: 1) the acquisition of integrated media and customer resources, complementary advantages to form a synergy, strengthen the competitive advantage of Internet video, and expand the scope of marketing services through the layout of vertical mobile marketing to enhance the value of advertising. 2) the revenue scale of Zhuhai Shitong and Shanghai fun is relatively small, and their business is in a period of rapid expansion, which on the one hand leads to the rapid growth of the company's performance, on the other hand, it can also effectively hedge against the increase in procurement costs caused by the concentration of Internet traffic (expansion of the scale and bargaining power), and improve the profitability of the company.
(1) Zhuhai Shitong: the net profit in 2017 was 66.8211 million yuan, significantly exceeding the performance commitment (35 million yuan), mainly because the business expansion exceeded expectations, and the revenue scale is expected to continue to grow in the future. If profits in 2017 are maintained in 2018, they will still exceed their performance commitments by 59 per cent. The core team of Zhuhai Shitong received an excess performance reward of 9.136 million yuan, accounting for 13.7% of the total profit. A reasonable incentive mechanism is expected to continue to mobilize the enthusiasm of the core team and effectively guarantee the business development and performance of Zhuhai Shitong.
The upstream media resources are rich, with head media resources, including CCTV, first-line satellite TV and mainstream network media and other resources.
In terms of media agency business, cooperative TV stations and video websites include CCTV resources; Hunan Satellite TV, Zhejiang Satellite TV, Beijing Satellite TV, Heilongjiang Satellite TV, Liaoning Satellite TV, Shaanxi Satellite TV, Hebei Satellite TV and other satellite TV resources; mainstream Internet video media such as Youku, iQIYI, Inc., Tencent, Sohu.com Ltd, Letv and so on.
In terms of media operation business, Zhuhai Shitong has obtained the exclusive agency right of Shanghai iQIYI, Inc. Beijing Branch, with the exception of Yanghe, Shuijingfang and foreign spirits, pre-prepared cocktails, beer, wine and liquor customers represented by 4A company. online advertising business in the liquor industry across the country. The downstream customer resources are stable and rich, and the customer base is mainly distributed in three major industries: fast consumer goods, Internet vertical areas (e-commerce, Internet finance, Internet education, Internet travel, etc.), games and entertainment. By the end of September 2017, Zhuhai Shantong has more than 100 brand clients, including Baisan, Hongxing Erke, Wantong Pharmaceutical Co., Ltd., Heichiro, Dali Park, Fangte Amusement Park, three squirrels, Little Red Book, NetEYun Music and so on.
(2) Shanghai Zhiqu: in 2017, the net profit was 44.5381 million yuan, 11.3% of the performance commitment was exceeded, and the core team performance reward was 1.1329 million yuan. Shanghai Zhiqu has a leading edge in the four vertical areas of App, including music, travel, youth culture and sports and health, and ranks 36th on the 2017 list of digital marketing companies. The company plans to acquire its remaining 40% stake, which is expected to achieve full consolidation in the second half of 2018, thickening the company's performance and deepening the layout of mobile marketing. (company announcement) on the media side, Shanghai Zhiqu focuses on integrating excellent APP resources in four vertical areas: music, travel, youth culture and sports health, targeting high-spending power users in vertical areas, and providing advertisers with deeper and more focused mobile marketing solutions. at present, it has won the exclusive agency / core agency of a number of high-quality vertical media. Including Zhihu Inc., NetEyun Music, ONE one, Music Power, course grid, snowball, etc., and has more than 200 high-quality media resources, such as Trip.com, Hornet Honeycomb, Curiosity Daily, second shot / continuous broadcast / Xiaoca Show, Mei Pomelo, etc.
At the main end of the advertisement, Shanghai Zhiqu provides services to more than 700 high-quality brand owners, including Jijia, CHANEL, BURBERRY, Land Rover, MUJI, Kindle, Starbucks Corp, Inte and so on.
Investment suggestion: the company continues to layout collaborative business and has obvious advantages in the vertical field of Internet video and mobile. Zhuhai Shitong and Shanghai Zhiqu both have core resources and their business is in a period of rapid expansion. We are optimistic about the company's natural growth in 2018. Assuming that the remaining 40 per cent of Shanghai Zhiqu will be fully consolidated in the second half of 2018, we expect the company's net profit from 2018 to 2020 to be 150 million yuan, 190 million yuan and 228 million yuan respectively, corresponding to 150 million yuan, 0.70 yuan and 0.84 yuan respectively. With reference to similar comparable companies, 30 times the valuation will be given in 2018, corresponding to the target price of 16.5 yuan, and the "buy-A" rating will be maintained.
Risk tips: TV media pick up less than expected, digital marketing industry competition deteriorated, Zhuhai Shitong and Shanghai interesting business expansion is not as fast as expected.
