Hangzhou is a radio and television company with high marketability and innovation. The company is a high-quality digital television and new media company under Huashu Group. It specializes in cable TV business and broadband business in Hangzhou, new media business nationwide, and smart city business (business scale each accounts for 1/3), forming a multi-dimensional integrated media matrix serving interactive TV, mobile TV, OTT and Internet audiovisual programs. The degree of marketization and innovation is ahead of other radio and television companies in the sector. In response to national policies, the company actively promoted the integration of provincial networks. According to the announcement, major asset restructuring acquired shares in Zhejiang Huashu and Ningbo Huashu in October 2019. If the acquisition is completed, with the exception of a few regions in Zhejiang Province, the main radio and television network assets will be incorporated into listed companies, taking a big step towards finally achieving the integration of the national grid. In terms of the new media business, the company's OTT business is leading the industry. Its business scope includes integrated broadcast control and content services. Cooperating terminal manufacturers include Heavenly Magic Box, Xiaomi, LG, Skyworth, LeTV, Sony, Hisense, Samsung, etc. OTT terminals covered more than 100 million units and activated more than 80 million on-demand users (data source: company announcement).

Take advantage of content and respond to policy layout for distance education. Previously, the company carried out smart campus product integration, including more than 30,000 episodes of educational video resources, covering young people and children of all ages. Taking advantage of the company's integrated media channels, the company launched an interactive TV business before the pandemic, providing an interactive TV platform for primary and secondary schools within the scope of the service to support online teaching (parents can follow their children's school news through this platform, and schools can post information and lectures through this platform). In the epidemic phase, “non-stop school suspension” means that the company provides a communication platform, the education department takes the lead and provides teaching video content, responds to government calls, and addresses parents' concerns. According to the official account, the company simultaneously broadcast the Hangzhou Municipal Bureau of Education courses during the suspension of classes due to the epidemic. Students can study on TV (China Digital TV 4K, HD set-top box), mobile phones (China Digital TV App), and computers (China Digital TV Network). We expect that the distance education model established during the pandemic phase is expected to be implemented rapidly, and may gradually evolve into one of the company's new performance growth points in the future.

Investment advice: The company's marketability and innovation are ahead of its peers, and the OTT business scale has obvious advantages in covering the whole country. Previously, the company had used the advantages of integrated media to lay out interactive learning platforms (including large screens, mobile phones, and PCs). The company responded to the call to address parents' concerns during the current pandemic, and is expected to develop new types of businesses, which may evolve into a business model leading performance growth in the future. We expect the company to achieve net profit of 645 million yuan, 774 million yuan, and 851 million yuan in 2019-2021, corresponding to EPS of 0.42 yuan, 0.50 yuan, and 0.55 yuan. Since radio and television have the logic of MCN and distance education, and the logic of 5G commercialization and the integration of national grids, we have given a certain valuation premium of 30 times 2020, with a corresponding target price of 16.2 yuan, covering the “Buy-A” rating for the first time.

Risk warning: Risks such as the advancement of the distance education business model falling short of expectations, the intensity of competition exceeding expectations, and the decline in major businesses such as cable television exceeding expectations.