The current situation of the company

Gehua Cable announced that controlling shareholder Beiguang Media Investment and Development Center and indirect controlling shareholder Gehua Media Group signed an "investment intention agreement" with China Radio and Television Network Co., Ltd. ("China Radio and Television"). With 19.09% of the shares of the company, Beiguang Media Investment and Development Center jointly initiated the establishment of China Radio and Television Network Co., Ltd. (tentative name, also known as "National first Network" joint-stock company). If the capital contribution is completed, the controlling shareholder of the company will be changed to the "National one Network" joint-stock company, and the actual controller will be changed to the State Council.

Comment

The integration of the national network has made positive progress, and Gehua has invested in the establishment of the national network joint-stock company. In February 2020, the propaganda Department of the Central Committee of the Communist Party of China and other ministries issued the implementation Plan for the Integration and Development of the National Cable Television Network, requiring China Radio and Television to take the lead and unite with provincial cable television network companies to jointly establish a "national one network" joint-stock company to realize the unified operation and management of the national cable television network. Beiguang Media Investment and Development Center holds 37.42% of Gehua Cable's shares, and this time it will contribute 51% of its shares as one of the sponsors of State Network Co., Ltd. In addition, Oriental Pearl, Huasu Media and other provincial network listed companies have also issued announcements to participate in the establishment of national network joint-stock companies in the form of cash contribution. We note that the State Network Co., Ltd. will be registered in Beijing, and Gehua Cable is currently the only provincial network listed company funded by shares, highlighting its unique position in the process of national network integration.

With the upgrading of the cable network and the accelerated development of radio and television 5G, the company is expected to create new momentum for growth.

We believe that the landing of national network integration is expected to break down regional barriers, achieve resource integration and economies of scale, accelerate the transformation and upgrading of the cable network, and enhance the carrying capacity and content support capacity of the cable private network. On the other hand, China Radio and Television previously signed a 5G co-construction and sharing cooperation framework agreement with China Mobile Limited, which will jointly invest in the construction of the 700Mhz 5G network at 1:1 and jointly own relevant network assets. We judge that the integration of the national network is expected to help solve the problems such as the dispersion of the right to use the frequency band and the elimination of the existing spectrum in the radio and television system, so as to accelerate the construction of the 5G network and the landing of the 5G application. Affected by IPTV, OTT and other competition, the company's cable TV service unit price is under pressure in recent years, and the overall profit scale continues to decline. We are optimistic that under the background of 5G era and national network integration, the company integrates the development potential of emerging businesses such as media technology platform, ultra-high-definition content and smart city, which is expected to inject new momentum into the company's long-term growth.

Valuation proposal

Keep the original profit forecast unchanged. The current share price corresponds to 2020max, 47GBP, 2021, and 24x PUnix E.

Maintain the neutral rating, taking into account the smooth progress in the establishment of the "National one Network" joint-stock company, which is conducive to the company's business development in the medium and long term, raising the target price by 14.7% to 10.90 yuan, corresponding to 25 times Pmax E in 2021, which has 5.8% upward space compared with the current stock price.

Risk

The progress of national network integration is not as expected; the competition in video and broadband services is intensified; and the loss of users.