Performance summary: in the first half of 2019, the company achieved operating income of 1.12 billion yuan, a decrease of 31.5% over the same period last year, a net profit of 130 million yuan, a decrease of 10.8% over the same period last year, and a net profit of 100 million yuan, down 12.2% from the same period last year.
Interesting pill network divestiture-the high base of players' transfer earnings is the main reason for the change in performance. During the reporting period, the company's revenue and profits declined to varying degrees, mainly caused by the high base effect. 1) in June 2018, the company spun off the interesting pill network, and if excluding its impact, 2019H1 dropped 11% compared with the same period last year. 2) 2018H1, the company made a profit of 110 million yuan from the sale of Gerald Moreno, while the 2019 transfer took place in the second half of the year. In the first half of 2019, the company's comprehensive gross profit margin was 46.6%, which remained stable. The sales expenses, administrative expenses and financial expenses changed-50.5%,-22.5% and 20% respectively compared with the same period last year. The sharp decline in sales expenses was due to the reduction of investment in the promotion of the game business.
A share is the only football club asset, and the platform value is scarce. The company achieved control of La Liga Royal Spaniard Club in 2016, becoming the first listed company to control the five major league clubs in Europe. After several years of operation, the operation of the club has improved significantly, the net asset scale has increased from 400 million yuan at the end of 2016 to the current 1.24 billion yuan (sports segment data), and the profit level has also been greatly improved. In the first half of 2019, the club achieved revenue of 460 million yuan and net profit of 47.55 million yuan, becoming an important source of profit for the company.
International youth training system: the Spaniard club is famous in football for its youth training, cultivating generation after generation of young talents. At present, the club has sent nearly 20 players to various echelon national teams in Spain, and players such as Mark Rocca, Dadell and Merondo have received widespread attention in European football. In addition, the club has opened 11 international football schools around the world, and the internationalization of youth training has been gradually deepened.
Excellent platform value: relying on the club's strong youth training foundation and scouting system, the club has created a "benign player flow" operation mode, and the platform value has gradually emerged. Through the promotion of youth players-buying potential stars to enrich the strength of the team, give stable playing and systematic training, and finally maximize the value of players through sales. Under this mode, the club not only increases its commercial income, but also greatly improves its competitive strength, and enters the intercontinental competition after many years. In 2019, the club sold Borja Iglesias, Mario Elmoso and other players to contribute at least 190 million yuan in net profit.
Business value depression: under the catalysis of "Wulei effect" & La Liga globalization, the club's influence extends to the whole world, and more than 350 million people browse and follow the news of La Liga. Recently, the club completed a number of sponsorship projects, and Le Sports became the club's main sponsor, signed a four-year shirt chest advertising contract of 14.6 million euros, and reached cooperation in Migu and iFLYTEK. We believe that the club's commercial value is still in a depression and has great potential for growth.
Core assets of Chinese football: it is of great significance for Wu Lei to join the Spaniard, which indicates that Chinese players can achieve both competitive value and commercial value, and become a new benchmark for Chinese players. Compared with the existing Chinese holding clubs, the Spanish club has better business integration, and the La Liga transfer system is more relaxed, which is the preferred base for Chinese players to study abroad, and is expected to play an important role in the development of Chinese football.
"going out to sea" + "IP" is the cornerstone of the future development of the game business. Xinghui Game is the main body of the company's game business and a leading research and transportation integrated game manufacturer. "Bawangzhiye" has achieved 100 million yuan a month at home and abroad, and its Korean version "three Kingdoms Zhi M" once topped the best-selling list of App Store in South Korea. In addition, "War discipline of the overlord of the three Kingdoms" and "Cangzhi era" have also achieved good market reputation and performance. In the first half of 2019, the company's game business achieved revenue of 380 million yuan, of which overseas game revenue was 130 million yuan, an increase of 33.3% over the same period last year. The company's IP reserves cover literature, comics, animation, film and television, games and other fields, with high-quality IP such as "Snow Eagle Lord", "Magic Night of the Tang Dynasty", "long Song Line", "Book and Sword gratitude and Revenge", which is a solid foundation for the future development of the game business.
Chinese football has a good momentum of development and is optimistic about theme investment opportunities. We believe that Chinese football is at a golden inflection point of rising prosperity. In the short term, the appointment of the management of the Football Association with the most experience in the industry is expected to bring a new atmosphere; the landing of the naturalized player policy can effectively improve the competitive level of the national team and is expected to be enhanced to qualify for the 2022 World Cup. In the medium term, the football industry system has been gradually improved, the Chinese Super League has made remarkable progress, and the ornamental and competitive level has been greatly improved. In the long run, the accumulation of youth training has gradually entered the harvest period, the supply of youth talents has increased, and infrastructure construction has been heating up, which is beneficial to the increase of effective football population in the long run.
Profit forecast and investment advice. We believe that the market pays too much attention to short-term catalytic factors and ignores the long-term operating value of the Spaniard club. With the correction of market expectations, the company is expected to bring excess earnings. We continue to maintain the target price of 7.72 yuan per share and maintain the "buy" rating.
Risk hints: the risk of macroeconomic recession, the risk of industrial policy change, the risk of club operation or less than expected, the risk of uncertainty of competitive sports, the risk of game business development or not as expected.