The 2019 deduction performance fell short of expectations; the 1Q20 performance fell short of expectations. Oriental Pearl announced 2019 results: revenue of 12.345 billion yuan, down 9.5% from the previous year; Guimu's net profit was 2,043 billion yuan, up 1.4% year on year. During the year, the company invested additional 2% of Dongfang Cable's shares in an unequal controlled merger, confirming related investment income of about 1.3 billion yuan. In 2019, the company deducted net profit of 415 million yuan, a year-on-year decrease of 57.2%. It was lower than our expectations, mainly due to pressure on revenue from businesses such as film and television mutual entertainment and video shopping.
The company announced a dividend of 0.27 yuan per share (tax included), and a total cash dividend of 922 million yuan.
By business: 1) Revenue from the film and television interactive entertainment business fell 49.0% year on year to 655 million yuan, and gross margin decreased 17.8 ppt to 1.1% year on year, mainly due to continuous adjustments in the film and television industry and delays in game version approval. 2) After excluding the influence of Dongfang Cable's merger, media network business revenue fell 5.4% year over year to 2,923 billion yuan, and gross margin fell 4.3ppt to 25.2% year over year. Among them, Internet TV and advertising business revenue declined significantly. 3) Video shopping/cultural tourism consumer business revenue fell 18.9%/12.0% year-on-year to 5.631 billion yuan/1,921 billion yuan respectively.
The company also announced its 1Q20 results: revenue of 3,098 million yuan, an increase of 20.5% over the previous year; net profit of 286 million yuan, a decrease of 49.2% over the previous year; net profit of non-return mothers was 218 million yuan, a year-on-year decrease of 16.8%, lower than our expectations. We judge that the year-on-year increase in the company's 1Q20 revenue was mainly due to Dongfang Cable's 4Q19 consolidation. However, during the COVID-19 pandemic, the company's operations in the cultural tourism sector were directly affected (places such as the Oriental Pearl TV Tower, World Expo Cultural Center, cinemas, etc.), and supply and demand for video shopping, advertising and other businesses were also blocked, causing the company's net profit in 1Q20 to decline significantly. As of 1Q20, the company's book monetary capital was 8.333 billion yuan, and transactional financial assets (mainly bank wealth management products) were 8.589 billion yuan.
Development trends
Build an all-media service ecosystem and follow the progress of new platforms, new content, and national grid integration. The company is committed to establishing an all-media service ecosystem with the “BestV+” streaming platform as the core, connecting content, users, data and resources, and creating an ecological closed loop from content service to consumption. It is recommended to focus on the development of the company's integrated media platforms and vertical platforms such as education, children, and sports, as well as the layout of new content such as premium movies and TV series, console games, and short video and audio content products. Furthermore, the “State Grid Integration” implementation plan was introduced in March 2020, and China Radio and Television took the lead in establishing a “National One Network” joint stock company. It is recommended to follow the relevant developments.
Profit forecasting and valuation
Considering the impact of the pandemic, we lowered our 2020 net profit forecast by 32.9% to 1,323 million yuan, and introduced the 2021 net profit forecast of 1,858 billion yuan. The current stock price corresponds to a price-earnings ratio of 23 times/17 times 2020/2021. Maintaining a neutral rating and a target price of 9.20 yuan corresponds to 17 times the price-earnings ratio in 2021, and there is room for 2.1% upward compared to the current stock price.
risks
The impact of the pandemic exceeded expectations; competition intensified; macroeconomic fluctuations affected entertainment consumption demand
