Covered and given a “buy” rating for the first time. The market generally underestimates the company's performance growth prospects. We believe that after the transformation of the past few years, the company has transformed from a traditional NetPremium enterprise to handle the two major sectors of communication (NetPremium Equipment+Satellite Communication+Tower) +New Media Advertising. After 5G is fully launched, it will benefit from the explosion of mobile traffic and the growth of communication infrastructure, and performance growth will enter the fast track. Based on the above assumptions, we predict that the company's net profit for 2019-2021 will be 193/293/381 million, corresponding to EPS of 0.27/0.41/0.53 yuan, corresponding to PE 28X in 2020. First coverage, giving a “buy” rating.
Net Premium Business+Internet Advertising operates in a dual model, and performance will continue to grow. The company's traditional business is network optimization, and it is the earliest listed company in the industry. In 2017, Juwang Technology was acquired to enter the Internet advertising industry, and the company is gradually developing into a first-class domestic mobile communication equipment and mobile Internet information integrated service provider. Currently, the company's main business has changed to a “network excellence” + “advertising” dual business model. Performance has increased dramatically. Benefiting from the high level of prosperity in the industry, the company's performance will continue to grow rapidly.
Communications services: Not only excellent domestic networks, but also satellite+smart light poles. In recent years, the domestic network premium market has seen a downward trend in the overall industry due to fierce competition, but since 2019, benefiting from the launch of 5G to improve the number and performance of network premium devices, it will continue to provide long-term impetus for the wireless network optimization coverage market. After going through the 3G and 4G development process, the company's business layout has changed positively. In addition to excellent wireless network coverage, it has actively deployed potential tracks such as 5G smart light poles and maritime satellite positioning
New media: Deeply target big customers, flourish more in the advertising business, and enjoy traffic dividends. Juwang Technology has been deeply involved in the internet advertising industry for many years and has a first-mover advantage in many areas. At the same time, the company secured steady partnerships with leading Internet companies such as Tencent, Baidu, Taobao, 360, ByteDance, Quheadline, and Sina Weibo, and achieved rapid business growth. Self-media and game intermodal transportation are also showing a trend of growing business, and the ability to monetize terminal traffic has been greatly enhanced.
Giant Network extended its gambling agreement, demonstrating management's confidence in future performance. On February 4, the company announced that it plans to sign a “Performance Reward and Compensation Agreement” with Zheng Jianqiu, chairman of Juwang Technology, promising to deduct non-net profit of 170 million and 190 million respectively in 2020 and 2021. We believe that the extension of Juwang's gambling agreement has fully demonstrated management's confidence in future development, is also conducive to enhancing the execution of the company's long-term strategy, and further strengthens the certainty that future performance will continue to grow.
Risk warning: 5G progress falls short of expectations; R&D progress falls short of expectations; macroeconomic downturn risk; self-media business regulation risk.
