1H23 The performance was better than we expected
The company announced 1H23 results: 1H23 revenue of 1,091 million yuan, up 1.3% year on year; net loss of 107 million yuan from profit to loss year on year; net profit of 35.33 million yuan after deducting non-return net profit of 35.33 million yuan, up 214% year on year. 2Q23 Operating income was 566 million yuan, up 1.6% year on year; net loss for the same period last year was 48.11 million yuan; net loss for the same period last year was 47.6 million yuan; net profit of non-return net profit was 35.87 million yuan, up 79.2% year on year. The net loss margin for 2Q23 was lower than our expectations, mainly due to better cost control.
Development trends
Actively seek users and follow the steady progress of the cable TV basic market. In the context of fierce competition in the IPTV, OTT and network video industries, the viewing habits of traditional large cable screen users continue to shift to mobile devices and smart screens. The company 1H23 carried out activities to retain users back to the Internet, used SMS to collect payments and vigorously develop broadband services. In the first half of the year, the company completed a city-wide survey of the broadband situation in units of building sites. We believe that at this stage, although network companies in various provinces are facing problems such as loss of users, underdevelopment of innovative businesses, and insufficient supply of high-quality content resources, etc., the company's traditional cable television business is still under pressure. 1H23 cable TV's basic ratings and maintenance revenue fell 5.7% year-on-year to 416 million yuan, but the company has made active efforts and suggests focusing on steady progress.
2Q23 implemented cost reduction and efficiency, but due to the decline in Guiguang Network's stock price, it still caused losses due to changes in fair value. The company's 2Q23 gross margin was 16.0% under strict cost control, with year-on-year and month-on-month increases of 8.6ppt and 4.7ppt respectively. The 2Q23 operating expenses rate is relatively stable. The sales rate, management fee rate, and R&D fee rate decreased by 0.1 ppt, increased by 0.3 ppt, and increased by 0.6 ppt, respectively. However, due to the sharp drop in the stock price of Guiguang Network, which is a financial asset held by the company in 2Q23, the company achieved a net loss of 99.15 million yuan due to changes in fair value in the current period. After excluding non-recurring profits and losses such as government subsidies and net income from changes in fair value, the company's 2Q23 net profit after deducting non-attributable net profit improved over the same period last month.
Promote technological system upgrades and terminal iterations, and focus on business model expansion. The company responded to the unified deployment of the General Administration and China Radio and Television to solve the problem of “charging fees” and complicated operations, and promoted the completion of research and development of new terminal product lines such as “Quick Box,” “TV Fruit,” and TV Stick; and also enhanced the overall support capabilities of the cloud platform, and took the lead in completing the testing and implementation of the China Radio and Television APK on Gehua's local set-top boxes (the first batch of provincial network companies in the country to access this platform through private network tests). In the medium to long term, we believe that the construction of 5G networks in radio and television and 5G applications are gradually maturing, and it is recommended to continue to pay attention to the expansion opportunities of the company's innovative products and business models.
Profit forecasting and valuation
We are keeping our 2023/2024 profit forecast unchanged. The current stock price corresponds to 35.9 times the 2023 price-earnings ratio and 29.8 times the 2024 price-earnings ratio. Maintaining a neutral rating and target price of 8.1 yuan, corresponding to 35 times the 2023 price-earnings ratio and 29x the 2024 price-earnings ratio, there is 2.4% downside compared to the current stock price.
risks
State Grid integration and 5G commercial progress in radio and television have exceeded expectations, industry competition has abated, and user retention has increased.