Incident: On April 18, Provincial Group (002400) released its 2018 annual report. In 2018, the company achieved operating income of 12.115 billion yuan, an increase of 7.26% over the previous year; realized net profit attributable to shareholders of listed companies was 186 million yuan, an increase of 200.49% over the previous year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 123 million yuan, an increase of 132.48% over the previous year.
Gross margin bottomed out due to the low entry threshold for digital marketing, gross margin has been declining year by year in recent years. According to the company's financial report data over the years, the gross profit margin of the advertising industry continued to decline from 17.97% in 2015 to 12.21% at the end of 17. During the reporting period, the overall gross margin of the advertising industry in 18 years was 14.32%, up 2.11% year-on-year, with a steady trend. With the support of big data technology, the company proposed a new TRCAS consumer behavior model integrating the application of big data technology into the top five consumer decision-making journeys The key step is to help customers drive digital transformation and build a marketing strategy framework for the digital age. This move may help the company increase its gross profit margin in the competitive advertising industry environment.
The risk of impairment of goodwill releases obvious improvements in operating cash flow During the reporting period, the company's total goodwill value was 2.13 billion yuan, and the remaining goodwill was 1.83 billion yuan, which was already reduced by 300 million dollars. Since all major subsidiaries completed their performance promises in 2017 and before, the probability of significant impairment of goodwill in 2019 is low. The company's expense rate during 2018 was 9.5%, which did not change much from last year. Operating costs were 10.38 billion, up 4.7% from the previous year, which was lower than the 7.3% growth rate of operating income, leading to an increase of 2.1%. Operating cash flow increased 2.1%. A sharp increase of 55.9% to 550 million.
Strong customer resources and talent advantages are obvious. After years of development, the company has established a customer development strategy with medium-sized customers as the support base and big brand customers as the core breakthrough point, and has achieved remarkable results. On the basis of consolidating existing core customer cooperation, it has continuously developed incremental core customers to minimize the risk of customer fluctuations. At the same time, the company has a complete management mechanism for introducing, cultivating, using and motivating professionals, strengthening talent acquisition and attraction, and continuously introducing high-end talents to the market to promote the company's healthy and sustainable development.
Profit forecast: After the official launch of the company's GIMC cloud platform, a series of standardized products were put into commercial operation one after another. Empowered by big data technology, the company's core competitiveness is expected to improve. We estimate that the company's EPS in 19/20/21 was 0.25, 0.31, and 0.38 yuan. Corresponding to the price-earnings ratio of 16/13.2/10.4 times, a rating for increased holdings was given.
Risk warning: Market competition increases risks, risk of brain drain, risk of asset impairment.