1H18 performance is lower than expected.

Beiba Media announced 1H18 results with revenue of 2.05 billion yuan, an increase of 13.4% over the same period last year, and net profit of 40 million yuan, down 11.6% from the same period last year, lower than expected. Year-on-year decline in gross profit margin 0.7ppt, in addition to changes in income structure, driving school / advertising business gross profit margin fell 18.5ppt year-on-year respectively; sales / management expense rate decreased 1.0/1.0ppt, proper cost control; financial expense rate increased year-on-year 1.3ppt drag on performance, mainly due to the increase in interest expenses on charging projects and the increase in bus body use right funds.

Trend of development

The bus charging business is on the right track. As of 1H18, the company has operated 556 bus charging piles, serving more than 3000 electric buses. 1H18 earned 137 million yuan and its gross profit margin rose to 38.8%. The bus Group will promote about 12000 electric buses by 2020, and we believe that the expansion of operation scale and the improvement of utilization rate will prompt the charging business to significantly contribute to profits in 2018.

Advertising business gross profit margin is under pressure, but the pressure on financial expenses is expected to be reduced year by year. Advertising revenue fell 9.8 per cent year-on-year to 192 million yuan, and gross profit margin fell 1.2ppt to 74.9 per cent, mainly due to a significant decline in the digital media business. Body advertising remains robust, and the gradual commissioning of the new double-decker will lay the foundation for performance growth. After the company signs the new car body advertising right contract (10 years), the capital occupation fee that needs to be paid in the early stage is higher, which will be a drag on the performance, but in the later stage, it will decrease year by year, and the impact will be reduced gradually.

Driving school business can hardly change in the short term. 1H18 revenue fell 37 per cent year-on-year, and gross profit margin fell sharply 18.5ppt to 15.8 per cent. The downward trend in the enrollment of driving schools continues, and we believe that the business of driving schools can hardly be improved in the short term.

Profit forecast

Taking into account the sharp decline in the performance of driving schools and the increase in financial costs, we have lowered our 2018 / 19 net profit forecast by 240.16% to 1.08 billion yuan.

Valuation and suggestion

The current share price corresponds to the 2018 Universe 19 years 27 Universe 21 times the price of the Placement E. Due to the decline in earnings and the decline in the market valuation center, we have lowered our target price by 39% to 4.66 yuan based on the segment valuation method, with a target market capitalization of 3.76 billion yuan, corresponding to 25 times Pmax E in 2018. Compared with the current stock price, there is 26.2% upward space. We are optimistic about the future development of the company's charging business, the current valuation is at the relative bottom of history, and in view of the relatively sufficient risk release after the stock price correction, we maintain the recommended rating.

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.