occurrences

On November 2, the company released its report for the third quarter of 2023 (revised version). The company achieved total revenue of 1,200 billion yuan in the first three quarters, a year-on-year decrease of 4.03%; net profit of 232 million yuan, a year-on-year decrease of 163.09%; Q3 achieved revenue of 348 million yuan in a single quarter, a year-on-year decrease of 27.61%; net profit of 245 million yuan, a year-on-year decrease of 2644.25%.

reviews

The loss of users has put pressure on the cable ratings business, and digital transformation has unleashed growth potential. The company is mainly engaged in radio and television business. With the shift in user consumption habits to short video/streaming media and the intensification of industry competition, users in the TV ratings business and value-added business were gradually lost (down 5.5%/7.0% respectively in 2022). Affected by this, the company's revenue for the first three quarters fell 4.03% year on year. In recent years, in order to ease the operating pressure of the main business, the company has actively seized opportunities for the country and Jilin to promote informatization construction. Relying on the advantages of optical fiber networks, data centers, service capabilities and talent teams, etc., the company actively participated in the construction of digital Jilin, and constructed national and provincial informatization projects such as the Northeast Regional Center for National Cultural Big Data and the main node of the Jilin Xiangyun Government Affairs Cloud to empower the informatization process in Jilin government, education, health, agriculture, forestry, water conservancy, finance and other industries. In May 2023, the company signed a strategic agreement with Jilin Northeast Asia Publishing and Media Group. In the future, it will carry out integrated media business based on a cultural digitization strategy; in October 2023, the company developed an important layout for the “Digital Jilin” information infrastructure through cooperation with Jilin Xiangyun; in addition, the company holds 53.2% of the shares in the Northeast Asia Big Data Trading Service Center to support it in carrying out data trading, technical consulting, hosting, authorization, cleaning and data quality assessment services, etc., to accelerate the company's industrial upgrading to the field of information technology application services. Multiple layouts provide safe and reliable cloud computing and big data application service capabilities for the company's e-government business applications at all levels, laying a good foundation for consolidating the company's digital economy infrastructure support position and promoting the upgrading of the company's digital industry.

The increase in infrastructure depreciation dragged down the gross profit margin, and the expense ratio increased slightly. In 2023, the gross sales margin of Q1-Q3 was 25.38%, a year-on-year decrease of 5.87 pct, mainly due to the increase in depreciation costs due to the company's successive completion of network infrastructure construction projects in the past three years. The sales expense rate/ management expense rate/ financial expense ratio for the first three quarters of 2023 was 14.44%/20.70%/6.88% respectively, an increase of 0.65pct/3.47pct/0.70pct over the previous year. The sales expense rate/financial expense ratio was basically stable, and the management expense ratio increased slightly. Overall, the company's profit level has been significantly suppressed in recent years due to the decline in revenue from its traditional main business and the increase in depreciation costs. In the future, with the implementation of various digital businesses, profitability is expected to be restored under the impetus of new business models.

Risk warning:

We expect the company to achieve operating income of 1,791/18.71/19.79 billion yuan in 23-25, net profit of 1.53/0.36/108 million yuan, corresponding to EPS of -0.05/0.01/0.03 yuan, corresponding to the closing price of November 23, 2023, corresponding to -48/202/68 times PE, respectively. It was covered for the first time, and a “increase in holdings” rating was given.