Core viewpoints

Event: the company released its 2018 annual report on the evening of April 17, and its total operating income in 2018 was 12.115 billion yuan, an increase of 7.26% over the same period last year. The net profit belonging to shareholders of listed companies was 186 million yuan, up 200.99% from the same period last year. The net profit belonging to shareholders of listed companies after deducting non-recurring gains and losses was 123 million yuan, up 132.48% from the same period last year.

The company's gross profit margin has rebounded, mainly due to the increase in the proportion of revenue in the digital marketing sector where the media agent's gross profit margin has picked up and the gross profit margin has remained stable. We expect the gross profit margin of the media agency business to remain stable or slightly higher in 2019 than in 2018, and the gross profit margin in the field of digital marketing will remain stable in 2019.

At present, the main subsidiaries with high net goodwill are Shanghai Jintuo, Shanghai Chuanyang, Shanghai Tuochang, Shanghai Yunxiang and Guangzhou Lanmen. We measure marketing subsidiaries from three dimensions: 1) the industry and cycle of the company's main customers; 2) the stability of the company's core personnel; and 3) the macroeconomic environment.

At present, the market environment of the major subsidiaries is relatively optimistic, and the personnel are relatively stable. It is expected that the risk of goodwill impairment or profit decline of the subsidiary companies in 2019 is relatively small.

18-year potential profit recovery: on the basis of 18-year 120 million deduction of non-net profit, we calculate that the adjusted profitability of the company is 400 million yuan.

Investment advice: we expect the increase in net profit for 19 years to come from lower asset impairment losses. The decline in Jintuo and Chuanyang fees will lead to performance growth, while Tuochang will also increase due to performance bets. From 2019 to 2020, the EPS of the forecast company is 0.23 yuan and 0.28 yuan respectively, corresponding to the current stock price PE of 17x and 14x respectively, maintaining the "recommended" rating.

Risk tips: subsidiary business risk, goodwill impairment risk, core customer churn risk, macroeconomic risk