China Television Media achieved revenue of 382 million yuan in the first half of 2019, an increase of 17.8% over the previous year, net profit of 63.5685 million yuan, an increase of 18.1% over the previous year, and net profit of the mother after deduction of the net profit of 585.37 million yuan, an increase of 12.7% over the previous year. Among them, 19Q2 achieved operating income of 173 million yuan, an increase of 2.7% over the previous year, net profit of 277.8828 million yuan, a decrease of 5.8% over the previous year, and net profit of the mother after deduction was 22.7812 million yuan, a decrease of 17.9% over the previous year. In terms of cash flow, net cash flow from operating activities in the first half of 2019 was -73,5297 million yuan, a decrease of 94.8026 million yuan over the same period last year. The main reason was a sharp decrease in net cash flow from advertising business operations compared to the same period of the previous year and an increase in the company's cash flow to employees compared to the same period of the previous year.

By business, in the first half of 2019, the company's advertising business achieved revenue of 193 million yuan, an increase of 32.5% over the previous year, with a gross profit margin of 21.0%; the film and television business achieved revenue of 61,521 million yuan, an increase of 7.6% over the previous year; and the travel business achieved revenue of 126 million yuan, an increase of 4.9% over the previous year. The company's advertising business performed well in the first half of '19, with revenue up 32.5% year-on-year, mainly due to: 1) the company's subsidiary, Shanghai CTV International Advertising, contracted the advertising business for the “China Poetry Conference” (fourth quarter); 2) Relying on the high-quality programs of the Science and Education Channel, continued to implement the “Brand Strategy” of channel advertising management in sales ideas, vigorously promoted the “CCTV Big Health Platform” brand resources, clarified sales responsibilities, implemented differentiated incentive mechanisms, and gave full play to the sales team's dynamism; 3) New media business was actively promoted, new media content was operated and closely marketed by the advertising company Combine. 19H1 also showed high growth in film and television technology services. Its subsidiary, China Television North, achieved revenue of 42.3938 million yuan, an increase of 27.1% over the previous year, and net profit of 1,986 million yuan, an increase of 31.2% over the previous year. China Television North was the first enterprise in China to enter the field of high-definition television production. In 2018, it achieved technological upgrades and completed the construction of a post-production base for 4K UHD movies and television programs.

The State Administration of Radio, Film, and Television issued a document to strengthen ultra-high definition, encouraging mergers and acquisitions of state-owned financial media and mixed ownership reforms, and China Television media received the relevant policy engine. The State Administration of Radio, Film, and Television issued “Opinions on Promoting the High-Quality Development of the Radio, Television, and Network Audiovisual Industry” in August, which once again strengthened and accelerated the construction of high-definition television and 4K/8K UHD. At the same time, it specifically proposed to support listed companies to strengthen and expand, encourage listed companies to actively and steadily carry out mergers, acquisitions and restructuring across regions, industries, and ownership, and encouraged radio, television, and network audiovisual flagship enterprises to initiate equity investment funds and actively participate in market mergers, acquisitions and restructuring. China Television Media is a platform owned by CCTV. Its subsidiary, China Television North, is deeply involved in ultra-high-definition business and has set up a media finance fund, which is in line with the policy direction.

Investment advice: China Television Media is driven by the troika of film, television, advertising, and tourism. The company showed a recovery in performance in 2018. The advertising business continued to pick up in the first half of '19, and revenue increased by more than 30%.

We expect the company's net profit to the mother in 2019-2021 to be 157 million/189 million/217 million yuan respectively, an increase of 36.9%/20.6%/14.7% over the previous year. The corresponding PE was 34.3x/28.4x/24.8x respectively. Subsequent arbitration and compensation with Mengjiangwei Company and special resource advertising and film and television services are expected to increase profit margins in the context of integrated media development. Since this year, we have continued to emphasize that integrated media is a key development direction. As a media listing platform under CCTV, China Television is expected to gain another opportunity to develop and maintain its buying rating under the wave of media integration.

Risk warning: The company's resource coordination with shareholders fell short of expectations, the impact of macroeconomics on advertising, the impact of competition in new media and technology, and the production and sales of film and television projects fell short of expectations.