Incident: The company announced that it intends to sign a “Performance Reward and Compensation Agreement” with Mr. Zheng Jianbo, Chairman of Jiangxi Juwang Technology.
Extend gambling and cash incentives to further strengthen the sustainability of future performance growth
Juwang Technology acquired by the company in 2017, and the net profit after tax attributable to the parent company after deducting non-recurring profit and loss after audits in 2017, 2018, and 2019 were no less than 93 million yuan, 130 million yuan, and 170 million yuan respectively. After the gamble expired, the company signed a “Performance Reward and Compensation Agreement” with Mr. Zheng Jianbo, Chairman of Juwang Technology, in order to protect the interests of the shareholders of the listed company and motivate the core team of the subsidiary.
1. A new gamble: Mr. Zheng Jianbo, chairman of Juwang Technology, promised that Juwang Technology's net profit after tax after tax after deducting non-recurring profit and loss (“promised net profit”) for 2020 and 2021 would be 170 million yuan and 190 million yuan respectively.
2. New incentives: The listed company promises to reward Zheng Jianbo and his designated management team in a tiered manner. In 2020 and 2021, respectively, the promised net profit exceeded 150 million yuan to 170 million yuan, 30% of the portion exceeding 170 million yuan, and 50% of the portion exceeding 170 million yuan was rewarded to Zheng Jianbo and his designated management team. At the same time, Zheng Jianbo's annual salary in 2020 and 2021 was set at 1 million yuan. After tax net profit and loss attributable to the parent company reached 130 million yuan after deducting non-recurring profit and loss every year, a performance bonus of 2 million yuan was paid to Zheng Jianbo and his designated management team.
3. Compensation agreement: If Juwang Technology does not fulfill its profit promise for the corresponding year, Zheng Jianbo needs a share+cash method for compensation. The upper limit is 260 million yuan. The specific compensation amount is calculated as follows: 2020 compensation amount = 130 million yuan - Giwang Technology's actual net profit at the end of the current period; 2021 compensation amount = 260 million yuan - Juwang Technology's cumulative actual net profit up to the end of the current period - already compensated amount.
4. Other promises: Zheng Jianbo promised that Juwang Technology will recover the remaining amount of accounts receivable balance above 60 million yuan on December 31, 2021 (after deducting the loss of accrued bad debts) by December 31, 2022. Zheng Jianbo will make up for the unrecovered amount in cash by March 31, 2023.
We believe that the new performance reward and compensation agreement: 1) fully reflects Juwang Technology's confidence in future development; 2) the interests of listed companies and subsidiaries are tied in line, which is conducive to leveraging the enthusiasm of the core management of Juwang Technology to work and maintaining the stability of the Juwang Technology team; 3) it is conducive to enhancing the company's strategic execution and further strengthening the sustainability of future performance growth.
Social advertising continues to grow at a high rate, and the comprehensive layout of new media is seeking more monetization models
The company's 2019H1 revenue increased by 46.06%, with the giant's Tencent social advertising business growing 64% year-on-year. In Tencent's SMB advertising service field, the advertising business is at the top of the list. At the same time, it has entered the Tencent KA advertising service field, with overall business revenue of nearly 1.5 billion yuan. 2019H1 The company has added access to emerging advertising media resources such as Today's Headline, Douyin, Weibo, Fun Headline, Xiaohongshu, and Kuaishou, and has achieved a comprehensive layout in emerging media. With the rise of the MCN model, the company can seek more new monetization models based on existing terminal traffic and rich cooperative platform advantages, and there is broad room for future growth.
In the self-media business, revenue exceeded 150 million in the first half of 2019. It has covered a total of over 100 million user segments in the fields of literature, light entertainment, original animation, online education, finance, games, beauty, etc.
In the traditional communication business, in the network optimization business, the company still maintains a high market share and will focus more on it in the future. In addition, the 5G smart pole tower operation service business has also been laid out with related services in many cities and regions, and the carrier has expanded from the original street light poles to monitoring poles. Intentional agreements have been signed with some city managers in Shandong, Guangdong, Yunnan and other regions. With the launch of large-scale 5G construction in China, traditional businesses will usher in an upward boom cycle.
Profit forecasts and investment advice
With the construction of 5G, the company's communications business ushered in an upward cycle. Meanwhile, while Juwang Technology's social advertising business continues to grow at a high rate, with the rise of the MCN model, it is seeking more new monetization models based on terminal traffic and rich cooperative platform advantages, and there is broad room for future growth. Due to the decline in gross profit from the advertising business and the calculation of asset impairment losses, the adjusted company's net profit for 2019-2021 was 200 million, 290 million, and 380 million yuan (the original values were 307 million, 374 million, and 437 million yuan). Corresponding to the 20-21 PE was 27x and 20x, reaffirming the “increase in holdings” rating.
Risk warning: advertising business gross margin continues to decline, goodwill loss, 5G business development falls short of expectations, etc.