occurrences

The company released its 2019 annual report. During the reporting period, it achieved revenue of 2.05 billion yuan, an increase of 4.0% over the previous year, and achieved net profit of 190 million yuan, an increase of 7.7% over the previous year, and an increase of 13.5% after deduction. On a quarterly basis, Q1/Q2/Q3/Q4 revenue changed +8.1%/-3.8%/+4.7%/+7.4%, respectively, and the net profit of the mother increased 9.2%/3.0%/6.3%/13.8%, respectively. Net cash flow from operating activities increased 65.5% year-on-year to $204 million.

Comment:

The main piano business performed smoothly and continued to innovate business models. ① Looking at the revenue side, the company is actively expanding sales channels. The revenue of the main piano business increased 3.78% year on year to 1.97 billion yuan. Among them, the number of pianos sold online increased 7.45% year on year to 3807 units (accounting for 2.4% of total sales). The education, training and media business increased 2.92% year-on-year to 65 million yuan. ② In terms of profitability, the gross margin of the piano business decreased by 0.78 pct to 30.7% year-on-year, mainly due to the cost of raw materials and manufacturing costs. The cost rate for the period decreased by 1.7 pct to 20.0% year on year (mainly due to a year-on-year decrease in sales expenses ratio of 1.4 pct to 6.9%).

Promote international operations and expand the cultural industry and Pearl River cloud service platform construction. ① In terms of the main piano business, the company promotes the integrated use of Schimmel piano resources, reduces production costs, improves the domestic marketing network, and will use Schimmel's original channels to export to international markets to further open up market space. At the same time, actively developing digital musical instrument products, expanding and extending “traditional business+Internet education” has become a new source of growth impetus for the piano business. ② In terms of post-piano market construction, build the Pearl River Piano Art Education Brand and adjust the Pearl River Cloud Service Platform business structure — actively expand fee regulation services and reduce low-return businesses such as Cloud Academy and music theory classes. At present, the company's Zengcheng base project has been put into use, and the cultural incubation park project has begun external leasing work, which is expected to accelerate brand image building by building a musical instrument culture industry base.

Profit forecast and investment advice: We expect the company's EPS for 2020-2022 to be 0.12, 0.14, and 0.15 yuan respectively. The corresponding PE will be 56.7X, 48.7X, and 45.8X, covered for the first time, giving an “increase in holdings” rating.

Risk warning: The impact of the epidemic, increased competition in the industry, and fluctuations in raw material costs.