Key points of investment:
Event: 3/30, the company released its 2018 annual report. In 2018, it achieved revenue of 1.97 billion yuan, an increase of 10.30% over the previous year; net profit attributable to shareholders of listed companies was 180 million yuan, an increase of 7.01% over the previous year. A basic earnings of 0.13 yuan per share was achieved, the same as the same period last year. It is proposed to distribute a cash dividend of 0.65 yuan (tax included) for every 10 shares.
Revenue from the main business grew steadily, and rising raw material costs dragged down profitability slightly. Competition in domestic and foreign piano markets is becoming increasingly fierce, the penetration rate of imported brands continues to rise, and the growth space for the piano business is being suppressed. In 2018, the company's pianos and accessories achieved revenue of 1,901 million yuan (10.53% yoy), accounting for 96.27%, which is the main source of the company's revenue. (1) In terms of sales: The company actively expands online sales channels and strongly supports the operation of Tmall, JD and Taobao corporate stores. Total piano sales in 2018 reached 155,993 units (7.74% yoy), of which 3,543 pianos were sold online (18.53% yoy); the company continued to promote the high-end upgrading of the piano industry and optimize the marketing network layout. Sales of high-end products, Kaiserberg, increased 13.27% year-on-year, boosting the unit price of pianos by 1.6 pct. (2) Profit side: Affected by rising raw material costs for piano manufacturing, the gross margin of pianos and accessories fell 1.52 pct to 31.48% year on year, which in turn dragged down the company's comprehensive gross margin by 1.46 pct to 31.32% year on year.
The subsidiary industry continues to be diversified, and profits in the music trading sector are improving. Education services achieved overall revenue of 63 million yuan (33.34% yoy), accounting for 3.19%, and gross margin increased 19.27pct to 19.66%. The company actively promoted the construction of art education outlets, set up direct education stores in Beijing, Guangzhou, Foshan and other places to serve international and national high-end cultural and artistic activities, and launched a series of online courses. By the end of 2018, the company had 645 art education franchisees (309 art classrooms, 336 course series), while promoting the Guangzhou Cultural Industry Innovation and Entrepreneurship Incubation Park project in an orderly manner.
International business is progressing in an orderly manner, and technical cooperation deepens the quality of backfeeding products. The global market share of the company's piano products reached more than 27%. Affected by the downturn in the international piano market, the foreign business achieved revenue of 200 million yuan (-7.54% yoy) during the reporting period, accounting for 10.13%, and gross margin fell 5.41 pct to 12.61%. To further improve operating performance in the international market, the company strengthened technical cooperation with Schimmel and introduced the Schimmel sub-brand for domestic production. In 2018, the brand sold 7,671 units.
Profit forecasting and investment ratings: As an industry leader, the company optimizes its main business structure in an environment where the piano market is sluggish, promotes high-end business to raise customer unit prices; diversifies the education and culture industry with brand advantages to seek growth impetus for market segments. The company is expected to achieve revenue of 2,211 million yuan, 2,462 million yuan and 2,745 million yuan respectively in 2019-2021; net profit of 197 million yuan, 217 million yuan, and 238 million yuan respectively; EPS is 0.15 yuan, 0.16 yuan and 0.18 yuan respectively, and PE corresponding to the current stock price is 52.31x, 47.45x and 43.15x respectively. First coverage, giving the company a “recommended” rating.
Risk warning: Increased competitive pressure in domestic and foreign piano markets, risk of fluctuations in raw material prices