Incident: The company announced on June 26, 2018 that it intends to transfer 8% of the shares of Baidu Yixin Network Technology (Beijing) Co., Ltd. (Baidu Gaming) held by Ningbo Meishan Bonded Duoku Equity Investment Partnership (Limited Partnership) (Duoku Fund) at a price of RMB 96 million.
1) The consideration for this transaction did not exceed 5% of the company's net assets in 2017 and did not constitute a major asset restructuring. Ningbo Jutai, the controlling shareholder of Jixiang Co., Ltd., holds a 28.3% share of Doku Fund, and the counterparty is an affiliate of the listed company; 2) Duoku Fund made a performance promise for this transaction, and Baidu Games completed a net profit of not less than RMB 300 million within 12 months of the transfer consideration. Otherwise, Duoku Fund will fully refund the transfer consideration and transfer 8% of the shares to the listed company in the form of zero consideration.
Baidu Gaming is an independent game operating company in the mobile assistant business segment of Baidu Group. It was formed by integrating the overall game business after merging Baidu Mobile Assistant and 91 Mobile Assistant. Currently, as an operator, Baidu Games is carrying out joint work with Baidu Group to develop the game intermodal transport business. At the level of a mobile assistant, Baidu Gaming has already established intermodal transportation services with core domestic game manufacturers Tencent, NetEase, etc. Considering that the controlling shareholder of the listed company still indirectly holds 20% of Baidu Gaming's shares, with the gradual verification of Baidu Gaming's business situation, there is still room for an increase in the shareholding ratio of listed companies in the future.
Ji Xiang Co., Ltd. and Baidu Gaming are expected to make more full use of Baidu's partnerships with various important traffic portals, develop and utilize traffic resources on existing platforms to a greater extent, strengthen gaming intermodal transportation and other businesses, and obtain commercial value that matches its traffic resources. At the same time, with the existing resources of listed companies, it is expected that content linking effects such as games, movies, variety shows, animation, media, etc. will gradually be realized. We believe Baidu Gaming has a lot of room for the future, and the acquisition of Ji Xiang Co., Ltd. is likely to become an important point in Baidu Gaming's development. It is also a milestone in the development of listed companies from film and television production to platform-based development.
Currently, Jixiang Co., Ltd. has abundant reserves of film and television IP resources. For example, the key film project “Dare to Ask Your Way” has carried out related game development work simultaneously. In the future, it will thoroughly explore the refined operation and multi-channel monetization methods of the work, and the distribution channels of Baidu Games will form an advantageous part of this. It is one of the practical ways of implementing the company's “influence monetization” strategy. It is expected that a win-win outcome will be achieved for Jixiang Co., Ltd. and Baidu Gaming.
Investment suggestions: The company's film and television business has a solid foundation, perfect talents, and sufficient reserves. Revenue from key TV series projects and movie projects in 2018 has been confirmed one after another to guarantee high annual performance growth. The content product layout for the next two to three years is clear, the strategic ideas for building a cultural consumption platform in the medium to long term are clear, and cooperation with large real estate companies, game companies, etc. has already begun, and there is plenty of room for development. Overall, we expect the net profit of listed companies preparing for the exam in 2018-2020 to be 500 million yuan, 566 million yuan, and 655 million yuan respectively, corresponding to EPS of 0.91 yuan, 1.03 yuan, and 1.20 yuan, and PE of 18.0, 15.9, and 13.7 times. Referring to the reasonable valuation level of high-quality film and television companies, 25 times PE in 2018, corresponding target price of 22.75 yuan, maintaining a “buy-A” rating.
Risk warning: The progress of the film and television project fell short of expectations, and the synergy effect was weaker than expected.
