3Q18 performance meets expectations

Simei Media announced 1~3Q18 results: operating income of 4.195 billion yuan, an increase of 39.09% over the same period last year; net profit of 200 million yuan, an increase of 5.31% over the same period last year, falling into the forecast net profit range of 1.90-285 million yuan, in line with expectations; corresponding to 0.34 yuan per share.

Trend of development

Revenue grew steadily, but the media business continued to be under pressure. The company's 3Q18 achieved revenue of 1.607 billion yuan, an increase of 32.58% over the same period last year; a net profit of 25.81 million yuan, down 52.67% from the same period last year; and a gross profit margin of 6.7%, down 3.7pct. 1-3Q18 revenue and return net profit have maintained steady growth, and we believe that the quarterly fluctuation is mainly due to the rhythm confirmed by the Quan Da film and television repertoire. But the media business is still under pressure, causing 1~3Q18 gross margins to fall 4.5pct to 11.0 per cent year-on-year.

Financial expenses have increased significantly, but operating cash flow has improved. With the expansion of business scale, the company reported a short-term loan balance of 395 million yuan at the end of the period, and the short-term loan increased interest expenses, resulting in an 84.11% increase in 1~3Q18 financial expenses compared with the same period last year. However, the company increased the management of sales payback and purchase payments, and the cash flow of operating activities increased by 176.69% over the same period last year, becoming a regular employee compared with the previous quarter, and maintaining a healthy development trend as a whole.

Profits for the whole year grew steadily, in line with expectations. The company expects a net profit of RMB 2.31-347 million in 2018, an increase of 0-50% over the same period last year. The net profit corresponding to 4Q18 is RMB 31.18 million-147 million, with a year-on-year change of-24.42% and 50.95%, which is in line with our expectations. We believe that the current macroeconomic links have a certain impact on the advertising industry, but the company around the "content as the core" development strategy, sound operation.

Profit forecast

We maintain the 2018Universe 19e profit forecast of 287 million yuan / 325 million yuan unchanged, but due to the implementation of the 2018 semi-annual equity distribution scheme, the capital reserve fund is transferred to all shareholders by 7 shares for every 10 shares, and the total share capital is increased, and the EPS is adjusted from 0.84 prime 0.95 yuan per share to 0.49max 0.56 yuan per share.

Valuation and suggestion

The current share price of the company corresponds to 12.3 of 18max in 1919 and 10.9 times of Pax E. Maintain the recommended rating, but due to the downward shift of the valuation center of the industry as a whole, we lowered the target price by 24.87% from 11.18 yuan to 8.4 yuan, corresponding to 16 times Phand E in 1819, which has 38% room compared with the current share price.

Risk

The controlling shareholder has higher pledge, acquisition integration does not meet expectations or goodwill impairment, and advertising boom is low.