FY19 performance meets KuaiBao; 1Q20 performance is lower than expected
Gehua Cable announced its 2019 results: revenue was 2.759 billion yuan, up 1.2% from the same period last year; net profit from home was 582 million yuan, down 16.2% from the same period last year; and net profit from non-return was 371 million yuan, down 30.6% from the same period last year, mainly due to the decline in revenue from single users of cable network and broadband business. at the same time, sales and R & D expenses increased compared with the same period last year. However, the company announced plans to pay a dividend of 0.66 yuan per share (including tax), with a total cash dividend of 919 million yuan, which exceeded our expectations.
The company also announced 1Q20 results: revenue was 492 million yuan, down 14.1% from the same period last year; net profit from home was 19 million yuan, down 92.3% from the same period last year; and net profit from non-return was 32 million yuan, down 66.5% from the same period last year, which was lower than we expected. We judge that the decline in 1Q20 revenue and profit is mainly due to the hindrance of the company's sales during the epidemic, and the fair value change income of the company's financial assets decreased by 165 million yuan compared with the same period last year.
Trend of development
The overall user scale is steadily increasing, but the service unit price is still under pressure. By the end of 2019, the company had 5.99 million registered cable TV users, an increase of 45000 over the same period last year; more than 5.5 million HD and UHD interactive digital TV users, an increase of 240000 over the same period last year; and 670000 household broadband users, an increase of 50,000 over the same period last year. However, due to the still fierce competition from IPTV and OTT, the ARPU value of the company's basic cable TV home business fell 6.3% to 25.16 yuan per month in 2019 compared with the same period last year. During the year, the three major operators continued to increase speed and reduce fees, continuing the competitive strategy of free broadband fees for 4G packages, making the company's broadband business revenue also drop 8.2% to 573 million yuan compared with the same period last year. The decline in user unit prices put pressure on gross margins, which fell by 4.4ppt to 21.8% in 2019. Looking forward to 2020, the company plans to expand 200000 new HD interactive users, while committed to reducing the loss of stock users, we judge that the size of the company's users is expected to remain stable, but the unit price may still be under downward pressure.
Pay attention to the development of intelligent radio and television and the progress of national cable network integration. The company actively carries out the development of intelligent radio and television construction and media integration, and promotes the technological development covering all aspects of cloud, management, terminal and transportation. We believe that with the advent of the 5G era, ultra-high-definition video and smart radio and television business are expected to bring new growth points for the company. In March 2020, the national cable network integration plan was issued, and a "national one network" joint-stock company was established. It is suggested that we should pay attention to the relevant progress.
Profit forecast and valuation
Due to the epidemic and other factors, the company expects 1H20 performance to decline significantly compared with the same period last year. We cut the net profit by 54.1% to 308 million yuan in 2020, but the impact of the epidemic is expected to be relatively short-term, introducing a net profit forecast of 604 million yuan in 2021. The current share price corresponds to a price-to-earnings ratio of 38 times 2021 / 19 times earnings in 2020. Maintain a neutral rating, lowering the target price by 15.2% to 9.50 yuan, corresponding to 22 times 2021 price-to-earnings ratio and 13.0% upside.
Risk.
Increased competition in video and broadband services; loss of subscribers.