Forecast that the net profit of 1H20 will increase by more than 60% year on year.
The company forecasts that 1H20 net profit (including minority shareholders' profit and loss) will increase by more than 60% year-on-year, mainly due to larger one-time gains: 1) 183 million yuan investment income from the sale of Guangzhou Skyworth Electronics; 2) 286 million yuan returned by value-added tax (after deducting related fees). Excluding the above effects, we estimate that 1H20's net profit is 133 million yuan, down 62% from the same period last year, which is in line with our expectations.
In addition, the company announced that it intends to spin off its Shenzhen Cookai Network Technology Co., Ltd. (Internet TV operation) and list independently.
Pay attention to the main points
The main business was negatively affected by the epidemic in the first half of the year: 1) 1Q20's multimedia business revenue fell 22% compared with the same period last year. Of these, Chinese TV revenue was-32% to 2.43 billion yuan, shipments were-30% to 1.44 million units, overseas TV revenue was-6.4% to 1.31 billion yuan, and shipments were-6% to 1.53 million units. 2) 2Q20, the company's sales of color TV sets and set-top boxes have improved, but the profitability of color TV sets is still weak.
The intelligent TV platform has a high valuation: 1) Kukai was funded by Skyworth in 2016 and successively accepted the investment of iQIYI, Inc., Tencent and Baidu, Inc. in 2006-18. The annual valuation of the company in 2016-17-18 is 3 billion yuan / 4 billion yuan / 9.6 billion yuan respectively. 2) Skyworth currently holds a 56.79% stake in Shenzhen Cookai. In 2019, Shenzhen Cookai has an income of 948 million yuan and a net profit of 148 million yuan. 3) under the epidemic, the Internet operation business benefited from the increase in consumer TV viewing hours, with 1Q20 revenue ranging from + 36% to 264 million yuan compared with the same period last year. At the end of 1Q20, a total of 46.79 million intelligent terminals were activated and the number of daily active users was 190000, an increase of 22% compared with the number of daily active users at the end of 2019.
The current market capitalization is undervalued, and share buybacks demonstrate confidence: 1) at the end of 2019, the company's net book assets are 16 billion yuan (about HK $17.9 billion), while the company's current market capitalization is only HK $7.1 billion. 2) the company's core assets include color TV business, Skyworth Digital 000810.SZ (57.5%), Cookai (56.79%) and a large number of valuable properties. 3) on June 17, the company launched a repurchase plan to repurchase and write off no more than 392800000 shares (12.83% of the company's current total share capital) at a price of HK $2.80 per share, with a total amount not exceeding HK $1.1 billion. At present, the company's share price is still lower than the company's buyback price.
Valuation and suggestion
Due to the large one-time income of the company, we raised our 2020 net profit forecast by 18% to 849 million yuan, and maintained the 2021 net profit forecast of 851 million yuan. Maintain the neutral rating and target price of HK $2.80, corresponding to 9.0x/9.0x 2020, 21e Pamp E, an increase of 21%.
The company's current share price corresponds to 7.4x/7.4x 2020amp 21e Pmax E.
Risk
The negative impact of the epidemic exceeded expectations; the risk of market competition.