Incidents: The company released its 2019 annual report, achieving operating income of 5.56 billion yuan, an increase of 56.43% over the previous year; Guimu's net profit was 155 million yuan, down 26.15% from the previous year; after deducting non-net profit of 887 million yuan, a decrease of 33.36% over the previous year. Basic earnings per share were $0.22.
The high growth of Juwang Technology has led to a sharp increase in revenue, and the decline in gross margin has put pressure on profits.
The merger and acquisition of Giwang Technology has driven the company's revenue growth by leaps and bounds in the past two years. In 2019, revenue increased 56.43% year on year, mainly because Juwang Technology's advertising business increased 80.2% year on year, game intermodal transport business grew 94.4%, and self-media business grew 33%, all of which maintained a very high growth rate.
However, the gross margin of the business related to Juwang Technology was low, and the gross margin of the wireless network optimization and solutions business also fell to 19.8% from 22.76% in 2018. It has put pressure on the company's profits in the short term.
The Internet advertising business has achieved remarkable results, reserving new customers to ensure future growth. Juwang Technology has rich Internet cooperative media resources, covering PC websites, software and mobile app markets, WAP sites, mobile apps, social media owned by Tencent, and new media content matrices for over 100 million users. The company has established a deep and stable cooperative relationship with Tencent. In 2019, it won Tencent's Major Service Provider Awards in the fields of Tencent KA advertising services and SMB advertising services. At the same time, cooperation with emerging advertising media resources such as Today's Headline, Douyin, Xiaohongshu, and Kuaishou will be strengthened to achieve a more comprehensive layout in terms of media resource reserves.
The 5G construction promotes deep coverage of demand, and the multi-field layout opens up room for growth. 5G construction will accelerate in 2020, and demand for indoor distribution and deep coverage will increase after wide coverage. The company focuses on intensive research and development in the fields of communication network coverage equipment and products such as 5G DAS, 5G small base stations, and O-RAN products, which is expected to further seize the 5G network coverage equipment and service market. At the same time, using the 5G smart pole tower business as an entry point to develop 5G communication infrastructure construction and operation services, and collaborate to expand in fields such as offshore satellite services and secure private networks, will open up space for the company's future growth.
Investment advice: We forecast that the company's net profit to the mother in 2020-2022 will be 198 million/249 million/326 million yuan respectively. The corresponding EPS will be 0.28/0.35/0.45 yuan respectively, maintaining the “increase in holdings” rating, with a target price of 10.5 yuan.
Risk warning: Overseas epidemic control is lower than expected.
