Event: the company announced that its operating income in 2018 was 3.554 billion yuan, an increase of 200.8% over the same period last year; the net profit of shareholders belonging to listed companies was 215 million yuan, an increase of 354.17% over the same period last year. At the same time, the revenue in the first quarter of 2019 was 1.001 billion yuan, an increase of 92.46% over the same period last year, and the net profit was 24 million yuan, an increase of 10.44% over the same period last year.

The results were in line with expectations, with strong growth in Internet advertising and self-media business.

The company's revenue in 2018 was 3.554 billion yuan, an increase of 200.8% over the same period last year, mainly due to: 1) revenue from wireless network optimized coverage equipment and solutions was 688 million yuan, down 12.39% from the same period last year; 2) advertising revenue was 2.352 billion yuan, up 1379.67% from a year earlier; 3) revenue from self-media business was 276 million yuan, up 1031.11% from a year earlier; 4) Satellite communications business revenue was 52.08 million yuan, an increase of 62.53% over the same period last year. 5) the revenue of game intermodal transport business is 35.74 million yuan, an increase of 297.59% over the same period last year. 6) in addition, the revenues of network excellent services, network excellent products and microwave passive devices are all tens of millions, showing a rapid decline.

Due to the giant network technology that the company completed its acquisition at the end of 17, excluding the consolidation effect, the company's self-media business revenue in 2017 was 117 million yuan, and the business actually increased by 135% in 2018 compared with the same period last year. Tencent advertising business in 2017 380 million yuan, while 2018 advertising business revenue of 2.352 billion yuan, an increase of 518.9%. It can be seen that the advertising business and self-media business are growing at a high speed.

The company's net profit in 2018 was 215 million yuan, an increase of 354.17% over the same period last year, mainly due to: 1) the consolidation effect of giant network technology; 2) the income from asset disposal was 106 million yuan, an increase of 104 million yuan over the same period last year.

2019Q1's revenue was 1.001 billion yuan, an increase of 92.46% over the same period last year, due to the growth of Juanwang's technology advertising business.

The net profit of 2019Q1 is 24 million yuan, up 10.44% from the same period last year, which is at the lower end of the previous forecast range (10%-40%). This is due to an additional asset impairment loss of 5.25 million yuan over the same period last year. If the asset impairment loss is added back, the growth rate in the first quarter is at the upper end of the previous forecast range.

The proportion of low gross margin advertising business has increased rapidly, leading to a decline in overall gross profit margin.

The company's overall gross profit margin in 2018 was 13.84%, down 12.71 percentage points from a year earlier, due to an increase in the company's advertising business with low gross margins. Among them, the gross profit margin of advertising business was 4.46%, down 3.93% from the same period last year; the gross profit margin of self-media business was 55.33%, down 0.69% from the same period last year; and the gross profit margin of wireless network optimized coverage devices and solutions was 22.76%, down 5.73% from the same period last year.

Future highlights: Internet advertising + self-media + 5G layout + satellite communications

On the whole, the company has basically realized the management and development strategy of "excellent communication network business and Internet advertising business", in which Internet advertising, self-media, 5G layout and satellite communications business will become the bright spots of the company's sustainable growth in the future:

1) Internet Advertising: the company has made a major breakthrough in the field of Tencent SMB advertising services, with advertising business ranking at the top. Juwang Technology has won the title of "2018 Outstanding Service provider" and "2018 Breakthrough Service provider" awarded by Tencent among the medium and long tail channel service providers. In the future, it is expected to grow with the growth of Tencent's social advertising business.

2) self-media: in the development of self-media business, it has covered more than 100 million users in literature, light entertainment, original animation, online education, finance, games, beauty makeup and other sub-areas, with great potential for traffic incubation.

3) 5G:5G smart tower operation service has been distributed in many cities and regions, and the company has determined the technical roadmap of 5G and started related R & D and product pilot work. At the same time, China Mobile Limited DAS won the best bid, China Mobile Limited leather base station project ranked third, and overseas business markets entered nearly 10 countries on three continents.

4) Satellite communications: Inmarsat serves nearly 3,000 merchant ships + fishing vessels, and the merchant shipping business has achieved a break-even in a single quarter. The company is building an intelligent marine platform based on maritime broadband satellite Internet to realize "Internet + Shipping", "Internet of things" and "Marine big data".

Investment advice and profit forecasts:

Overall, Wechat Internet traffic accelerated dividend + 5G will drive the company's continued growth in the next few years. As the company's 2018 performance was lower than our previous forecast, we lowered our profit forecast for 2019-2021 to 307 million and 374 million yuan from 335 million and 467 million yuan, and expected a net profit of 437 million yuan in 2021, corresponding to a 19-year PE 25 ×, maintaining the "overweight" rating.

Risk Tip: Wechat official account traffic realized less than expected, fierce competition in the mobile advertising industry, etc.