Matters:
Huashi NetJu, a wholly-owned subsidiary of the company, plans to introduce strategic investors to increase capital and expand shares, and Tianjin Jinmi will increase the capital of HuaTV NetJu. Tianjin Jinmi belongs to the Xiaomi Group. After this capital increase and stock expansion is completed, HuaTV Wangju is still the company's holding subsidiary, which does not affect the scope of the company's consolidated statements. Tianjin Jinmi invested a total of RMB 200 million in Huashi NetJu by increasing the registered capital of HuaTV NetJu. After such investment is completed, the registered capital of HuaTV NetJu will increase from 12.5 million yuan to 130208 million yuan. Tianjin Jinmi holds 4% of the shares of HuaTV NetJu (corresponding registered capital of RMB 5208 million). Jebsen Culture Group plans to relinquish priority subscription rights for this capital increase.
After this capital increase was completed, the company's shareholding ratio was reduced from 100% to 96%, and HuaTV Wangju is still the company's holding subsidiary.
Guoxin Media's opinion: This transaction is conducive to consolidating the company's strategic integration with media terminals and channels, and forming a capital bond with investors and their affiliate Xiaomi Group. The two sides will make full use of their respective advantages, in-depth cooperation, and seek common development. Investment suggestions: The company's copyright business was affected by the release of theatrical movies. Orders related to audio and video technology were delayed, and the deep binding with Xiaomi had a significant effect on the company from the perspective of financial support and business cooperation. We expect the company's net profit to be 4.42/6.91/843 million in 20-22, the company's EPS for 20-22 was 0.17/0.27/0.33 yuan, and the corresponding PE was 36/23/19x. Taking into account that the company is currently still in a relatively low position, the pledge rate is declining, the fixed increase is expected to be implemented, positive signals in various categories are improving, and the buying rating is maintained.
Commentary:
The company transferred 4% of the shares and brought in strategic investor Xiaomi Group
Huashi NetJu, a wholly-owned subsidiary of the company, plans to introduce strategic investors to increase capital and expand shares, and Tianjin Jinmi will increase the capital of HuaTV NetJu. Tianjin Jinmi belongs to the Xiaomi Group. After this capital increase and stock expansion is completed, HuaTV Wangju is still the company's holding subsidiary, which does not affect the scope of the company's consolidated statements.
Tianjin Jinmi invested a total of RMB 200 million in Huashi NetJu by increasing the registered capital of HuaTV NetJu. After such investment is completed, the registered capital of HuaTV NetJu will increase from 12.5 million yuan to 13.208 million yuan. Tianjin Jinmi holds 4% of the shares of HuaTV NetJu (corresponding registered capital of RMB 5208 million). Jebsen Culture Group plans to relinquish priority subscription rights for this capital increase. After this capital increase was completed, the company's shareholding ratio was reduced from 100% to 96%, and HuaTV Wangju is still the company's holding subsidiary. Before this capital increase was completed, the target company's pre-investment valuation was RMB 44.8 billion; after the capital increase was completed, the target company's post-investment valuation was RMB 5 billion.
After Migu and Huawei, they conquered another city. The value of the HuaTV network aggregation industry chain highlights that in 2018 and 2019, the new media copyright distribution and operation business accounted for 61% and 82% of consolidated revenue. Thanks to the characteristics of rapid transmission, wide coverage of information dissemination, and strong interactivity, new media channels are increasingly gaining influence under the catalyst of the epidemic. The company's new media copyright business has been operating and growing normally since the impact of the pandemic, and a deep cooperation agreement was signed with Mobile Migu. As China Mobile continues to expand its content operation business, the company's profitability has been further enhanced.
2020H1 Huaxi achieved revenue of 1,023 million, a decrease of 23.38% from the same period, and achieved net profit of 269 million yuan, an increase of 10.81%. During the downturn in the industry, the Q2 performance performance exceeded expectations. The national cinema network was shut down in the first half of the year, causing the company's theatrical film distribution business to be blocked. To cope with the impact of the epidemic, the company promptly adjusted its new media copyright distribution strategy. On the one hand, it continued to dig deeper into the needs and cooperation of existing customers and increase the operation of the film library; on the other hand, it carried out in-depth operational cooperation with partners to increase revenue scale.
We believe that on the one hand, the Xiaomi Group will complement it from a financial perspective, and at the same time, in terms of business cooperation, it is expected to become an important new channel party for China TV Network in 2020. Following the in-depth cooperation with Migu in the first half of the year, the company's business volume will continue to increase significantly. The strategic significance of the company's cooperation with Xiaomi is:
1. The cooperation with the Xiaomi Group has deepened the ability of listed companies to cultivate further on the channel side, enhanced the business ability to distribute and operate copyright for new media. The strategic layout of listed companies is more clear, and future development can be expected.
In future business development, listed companies will focus on the distribution and operation of new media copyright, adhere to the core business philosophy of “multiple rounds - multiple channels - multiple scenarios - multiple models - multiple years” of business monetization, and gather the resources of the entire company to build an industrial chain with “copyright” as the core. It has become the leading new media integrated supply chain platform for film and television content in China and the world.
2. The execution of this transaction will help promote the continued high-quality development of HuaTV Network, improve its operating capabilities, enhance the company's comprehensive strength in film and television copyright operation and media culture dissemination, and further enhance the company's capital strength, resilience to risks and sustainable financing capabilities.
Based on the complementarity of superior resources and industry collaboration between the two sides, Xiaomi and HuaTV Network have carried out business cooperation for many years. Driven by this strategic investment, the two sides will cooperate deeply to jointly promote the global multi-screen video scenario-based entertainment ecosystem and bring upgrading and innovation in content entertainment methods to users around the world.
Goodwill risk has basically been eliminated. The company has strengthened collection, and impairment receivables are expected to stabilize since the company transformed into the media industry in 15-16. In addition to small-scale mergers and acquisitions of traditional audio and video technology, Jebsen Co., Ltd. has laid out copyright business through the acquisition of China TV Network, and through the acquisition of Star Era, Rui Jiexiang, and China Television's brilliant layout of the video content production business. By the end of 17, the company's goodwill totaled 5,547 million, of which China TV's copyright business accounted for 53%, film and television content production accounted for 46%, and traditional audio and video technology accounted for 1%.
In 18-19, due to the cold winter of the film and television industry and stricter industry policies, the company continuously adjusted its strategy and contracted the film and television content sector. In 2018, it accrued 846 million dollars in goodwill. As of mid-2020, the company had a remaining 3,052 million of goodwill on its account. The core was only China TV network gathering, and the risk of goodwill impairment was basically eliminated.
Asset impairment in '19 = preparing 961 million dollars for bad debt+preparing for a fall in inventory price of 135 million+loss of goodwill impairment of 1,656 million = 2,751 million. Apart from goodwill, the company's bad debt reserves in '19 were large, accounting for 35% of asset impairment preparations in '19. A small number were traditional audio and video customers, mostly customers in the film and television content production sector. At the end of the year 20, more films and television productions were launched. It is expected that the company's bad debt preparations may be partially recovered. The remaining accounts receivable of the 20H1 company are about 2.2 billion, and the company will strengthen collection of funds in the future.
Investment advice: By binding to Xiaomi, the value of the HuaTV network cluster industry chain will be highlighted, and the purchase rating will be maintained.
The company's copyright business was affected by the release of theatrical movies. Orders related to audio and video technology were delayed, and the deep binding with Xiaomi had a significant positive effect on the company from the perspective of financial support and business cooperation. We expect the company's net profit to be 4.42/691/843 million in 20-22, the company's EPS for 20-22 was 0.17/0.27/0.33 yuan, and the corresponding PE was 36/23/19x. Taking into account that the company is currently still in a relatively low position, the pledge rate is declining, the fixed increase is expected to be implemented, positive signals in various categories are improving, and the buying rating is maintained.
Risk warning
The fixed increase plan has not yet been reviewed and approved by the Securities Regulatory Commission; the impact of the epidemic continues to drag down the company's annual performance; the risk of accounts receivable recovery; and the risk of intellectual property protection.