Key points of investment:
Comprehensive transformation of the Internet, Internet media+digital marketing led the company's rapid growth. The company formally transformed through mergers and acquisitions in 2016, forming a development strategy where the two core businesses of Internet media and digital marketing went hand in hand. In 2019, the company's revenue exceeded 10 billion to 10.87 billion yuan, and the net profit returned to the mother was 66% and 25% respectively. The compound growth rates after the transformation were 66% and 25% respectively. If the impact of equity incentive expenses was taken into account in 2019, net profit was 787 million yuan. The company's main source of profit is the Internet media business, which accounted for 17.7% of revenue and 62% of gross profit in 2019. The key business layout is overseas traffic entry, and it will gradually expand mobile terminals in the future. Zhidu Group, the majority shareholder of the company, is committed to building an industrial chain layout supported by integrated financial services, with the Internet and intelligent manufacturing as two wings. The synergies between various sectors are strong, and the strategy is progressing steadily.
The “trinity” model creates a closed loop in the global mobile internet ecosystem. The company focuses on traffic entry platforms and traffic management platforms, focusing on traffic drainage and integration, and efficiently and high-quality user mining to achieve accurate commercial monetization.
1) Spigot is the company's leading overseas third-party search portal, driven by algorithms and big data to form high technical barriers; the global search engine market is about 34 billion US dollars, Spigot has an average daily effective search volume of more than 10 million, and its business covers more than 50 countries, with a focus on North America and Europe, and is committed to developing emerging economies. It has become an important source of profit for the company, exceeding performance promises in 2016-2018.
2) FMOBI (Falcon Mobile Advertising Network) is an important platform for the company in the domestic mobile advertising network field. It is the company's current important mobile traffic portal layout. Advertisers are provided with rich user profiles and accurate positioning based on big data analysis.
3) The digital marketing business is an important source of revenue for the company. Zhidu is also once again acting as an agent for leading media such as Ali, Baidu, Sogou, 360, etc., continuously expanding the agency qualifications for new users such as VIVO, Xiaomi, etc., and Zhidu Falcon's IoT traffic management business gradually became effective, obtaining exclusive agency rights for Mango TV-OTT in 2020-2022, laying out large-screen advertising business, etc. By tapping into the value of the entire Internet advertising industry chain, the digital marketing business has formed a high-quality customer group.
Fund-raising lays out artificial intelligence+blockchain technology to help transform emerging media. With the increasing mobility of the Internet, the number of netizens and the length of time spent on the Internet have increased year by year. Currently, the number of Internet users in China has exceeded 900 million, and the average person is online for 30.8 hours per week. Emerging media such as short videos and live broadcasts will help diversify traffic entry. In May 2020, the company plans to raise no more than 1,623 billion yuan of capital through a non-public offering for intelligent advertising, marketing business data, live e-commerce and MCN content production, and blockchain infrastructure construction to seize the transformation dividends of emerging media; and to strategically cooperate with Guoguang Electric in artificial intelligence applications and blockchain application scenarios.
Profit forecasting and valuation: The company began a comprehensive transformation of the Internet sector in 2016. At present, it has formed two main layouts, a media business centered on traffic entry and a digital marketing business, and has gradually increased the service layout of the Internet industry, focusing on the development of artificial intelligence and blockchain. Strengthen the integration of the company's existing business and technology through private offerings to adapt to changes in the industry. We expect net profit of 731, 896, and 1,122 million yuan respectively from 2020 to 2022. The corresponding EPS will be 0.55, 0.68, and 0.85 yuan/share. If we consider the completion of the additional issuance in 2020, it is estimated that no more than 281 million new shares will be added. The corresponding diluted EPS will be 0.45, 0.56, and 0.70 yuan/share respectively, and the corresponding PE will be 19/15/12 times, respectively. Referring to the situation of comparable companies, the average PE of the marketing business industry in 20 years was 36 times, and the average PE of the Internet technology service industry in 20 years was 43 times.
First coverage, giving the company a “buy” rating.
Risk warning: market competition risk, personnel management and brain drain risk, overseas asset integration falls short of expectations, tighter industry regulations and platform policy changes