Incident: On September 7, 2020, Jebsen Co., Ltd. issued an announcement regarding its wholly-owned subsidiary introducing strategic investors to increase capital and sign a transaction agreement. The company's subsidiary HuaTV Netju plans to introduce Tianjin Jinmi, a subsidiary of Xiaomi, as a strategic investor to increase capital and expand shares. Tianjin Jinmi plans to invest 200 million yuan and hold 4% of HuaTV Netju's shares.

Complementary advantages, industry collaboration, and win-win content and channel cooperation. As the world's leading consumer electronics brand, Xiaomi has strong advantages in terms of media terminals and channels, while HuaTV Netzou, a leading copyright leader in new media, film and television, has rich content. The two sides will cooperate deeply to jointly promote the global multi-screen video scenario-based entertainment ecosystem, and bring the upgrading and innovation of content entertainment methods to users around the world, which is expected to achieve a win-win situation:

Xiaomi is expected to receive massive content resource support to enhance user experience and enhance monetization capabilities;

HuaTV Network is expected to receive funding and channel support to implement the core business concept of “multiple rounds - multiple channels - multiple scenarios - multiple models - multiple years” to build a leading new media integrated supply chain platform for film and television content in China and the world. The leading position is expected to be further consolidated.

The copyright value of new media, film and television is prominent. At the equity level, in addition to Xiaomi's proposed capital increase, Yizhuang SDIC also previously reached a capital increase and stock expansion agreement with HuaTV NetJu; at the business level, HuaTV NetJu signed a deep cooperation agreement with Mobile Migu. At the same time, Huawei, ByteDance, Station B, etc. have also further strengthened cooperation with the company, and the copyright value of new media film and television has been highlighted.

Entering the game lightly, profit estimates are expected to rise twice. In 2018-2019, affected by the industry environment and funding issues, the company entered a period of adjustment, strategically shrinking the film and television business, gradually eliminating goodwill risks and reducing the size of interest-bearing debt.

The company is expected to enter a new stage of development in 2020. On the one hand, businesses such as audio, video, and copyright operations are expected to reverse; on the other hand, valuation suppression factors such as goodwill, debt, and pledges are expected to improve.

Copyright business: The advantages of card cards are obvious, the inflection point in cash flow has already been reached, and hematopoietic capacity continues to improve.

HuaTV Network is a leading film and television copyright operator. It has the largest film and television copyright library in China, leading the market in terms of stock and increment. By the end of June 2020, the company had integrated 9929 new media film copyrights, 2,665 TV series, 84,197 episodes, and 1,707 animated films, totaling 750,51 minutes. The advantages of card slots are obvious.

The company's cash flow inflection point has reached an inflection point. Starting in 2018, the sum of net operating cash flow and net investment cash flow was corrected. In 2019, it exceeded 5.2 billion yuan. On a quarterly basis, it has been positive for 5 consecutive quarters since 2019Q2, which means that the hematopoietic capacity of the company's copyright business continues to increase, and the recovered capital can fully cover annual investment and generate a surplus.

Accelerate customer development and operating model iteration. On the one hand, the company maintains stable cooperation with Tencent, iQiyi, Youku, and Mango, and on the other hand, accelerates the expansion of customers such as Headline, Migu, Station B, and Huawei. The business volume is expected to increase rapidly.

Audio and video business: Ultra HD orders have entered the sales period, and commercialization of 3D sound is expected to accelerate.

Policies promote the maturity of superposition technology, and the UHD industry is poised to develop. As a leading provider of audio and video solutions, the UHD upgrade is driving a new round of growth for Jebsen Co., Ltd. The company began setting up the 4K UHD video technology business around 2016, participated in the drafting of various standards related to UHD video. Currently, it has won bids for several UHD projects and participated in dozens of CCTV 4K program missions such as the Spring Festival Gala and the 70th anniversary military parade.

In February 2016, it invested 20% of AURO TECHNOLOGIES's shares to accelerate the deployment of audio standards. The Chinese three-dimensional sound standard (draft), led by Jebsen and developed in cooperation with German institutions such as Fraunhofer IIS, has been prepared and is in the review process, and is expected to be released within this year. After the standard is officially promulgated, it is expected that it will be replaced by imports with better results and lower prices. It will be widely used in sound equipment such as computers and mobile phones, with huge market space.

Film and television business: Focusing on security and certainty, revenue is expected to rise sharply in 2020. The company is shrinking its film and television business as a whole, focusing on safety and certainty, and increasing capital recovery efforts for existing projects. In response to the inquiry letter, the company revealed that the 2020 TV series “Black and White Forbidden Zone” and “Country Kids” are expected to achieve revenue, and the subsidiary Star Era's revenue is expected to grow by over 450%.

Profit forecast: We forecast Jebsen Co., Ltd. to achieve revenue of 3,319 billion yuan and 40 billion in 2020-2022, respectively.

4.5 billion yuan and 4.639 billion yuan, up -7.94%, 21.88% and 14.69% over the previous year; the net profit achieved by the mother was 597 million yuan, 812 million yuan, and 977 million yuan respectively, reversing losses and increasing 36.03% and 20 percent over the previous year.

30%; corresponding to the 2020-2022 EPS were 0.23 yuan, 0.32 yuan, and 0.38 yuan, respectively.

Risk warning: risk of industrial policy changes; impact of new technology; increased competition; risk of uncertainty introduced by strategic investors.