Results in the first three quarters of 2020 are in line with market expectations
Oriental Pearl announced 1-3Q20 results: operating income was 7.628 billion yuan, down 10.9% from the same period last year; net profit from home was 1.307 billion yuan, up 1.0% from the same period last year; net profit from non-return to home was 948 million yuan, down 2.2% from 3Q20 yuan, down 39.4% from last year; net profit from home was 306 million yuan, up 30.3% from the same period last year The non-return net profit was 197 million yuan, down 22.5% from the same period last year, in line with market expectations.
Trend of development
The impact of the epidemic continued, operating income decreased, and gross profit margin increased due to changes in income guidelines. We expect that due to the continued impact of the epidemic on the company's main media network and literature and travel consumption, the company's 3Q20 revenue fell 39.4% year-on-year to 1.728 billion yuan, while the company's 3Q20 gross profit margin increased to 35.9% year-on-year due to the implementation of the new revenue standards. Due to the contribution of 182 million yuan of investment income and the reduction of income tax expenses and other factors, 3Q20's net profit increased by 30.3% to 306 million yuan compared with the same period last year. We believe that with the fading of the impact of the epidemic and business expansion, the company's profitability is expected to gradually recover.
The expense rate has increased, and the net cash flow of operating activities has increased. Due to the gradual resumption of business and publicity activities after the epidemic, the costs of 3Q20 have increased. Among them, sales expenses increased by 1.0% year-on-year to 175 million yuan, sales expense rate increased by 4.1ppt to 10.1% year-on-year, management expenses increased by 28.4% to 243 million yuan, management expense rate increased by 7.4ppt to 14.1%, and R & D expense rate increased 1.6ppt. The net cash flow of the company's 3Q20 operating activities increased by 102.8% to 1.468 billion yuan compared with 3Q19, and we believe that the company's cash flow situation may continue to improve with the recovery of performance.
Actively participate in the "national network integration" and accelerate the promotion of BesTV+ streaming strategy. On October 12, 2020, China Radio and Television Network Co., Ltd. was officially put into operation. The company contributed 500 million yuan with its own funds and held a 0.49% stake in the company after its establishment. On September 3, 2020, the company released its streaming strategy and launched its BesTV+ products. The company expects to start with four opening strategies: channel and content production, big screen and small screen, private network and mobile Internet, online and offline omni-channel entertainment and life services, and build an internal linkage mechanism and a closed loop for new consumption. We believe that the company's four opening strategies are expected to give play to the advantages of SMG content, production experience and diversified industrial layout capabilities at a deeper level, and make use of home large screen entrances such as Oriental Cable and IPTV/OTT, as well as offline channel advantages such as Oriental Pearl Tower and Mercedes-Benz Cultural Center, to achieve the connection between large and small screens, so as to attract audiences, improve stickiness and expand audiences. We believe that the company is expected to seize the development opportunity of "national network integration" and radio and television 5G to speed up the transformation from traditional business to new business, and realize the mutual empowerment of BesTV+ streaming media group and other diversified industries.
Profit forecast and valuation
We keep our net profit forecasts for 2020 and 2021 unchanged. The current share price corresponds to 20.5 times 2020 price-to-earnings ratio and 17.5 times 2021 times earnings ratio. Maintain the neutral rating and target price of 10.88 yuan, corresponding to 23.5 times 2020 price-to-earnings ratio and 20.0 times 2021 price-to-earnings ratio, which has 14.5% upside space compared with the current stock price.
Risk.
The launch effect of the new product is not as good as expected; the impact of the epidemic exceeds expectations; competition intensifies; macroeconomic fluctuations affect recreational consumption demand.
