The 2023 results are in line with market expectations, and the 1Q24 results are lower than our expectations. The company announced the 2023 and 1Q24 results: 2023 revenue of 7.973 billion yuan, up 18.9% year on year; net profit to mother of 602 million yuan, up 245.8% year on year; net profit after deducting non-return to mother of 328 million yuan, turning a year-on-year loss into a profit. Net profit for 2023 falls into the estimated range of 555-666 million yuan. 1Q24's revenue was 1,595 billion yuan, down 6.5% year on year; net profit to mother was 119 million yuan, down 53.3% year on year; net profit after deducting non-return to mother was 93 million yuan, down 46.3% year on year. Performance was lower than our expectations, mainly due to lower than expected radio and television business revenue and fair value changes and other revenue differences. In addition, the company plans to distribute cash dividends of 1.80 yuan (tax included) for every 10 shares in 2023, and a total cash dividend of 605 million yuan (tax included) in 2023, accounting for 100.5% of net profit attributable to mother.

Development trends

The cultural tourism industry recovered healthily in 2023, and the 5G radio and television business initially formed a new pattern. Cultural consumption business: The cultural tourism industry fully recovered in 2023. The company's cultural consumption business revenue increased 61.7% year on year, of which cultural tourism business revenue also increased 214.8%. Smart radio and television business: The revenue of the company's integrated media business and smart radio and television 5G business increased by 5.7% and 9.5% respectively in 2023. The integrated media platform service covers 61 million IPTV users, 107 million OTT users, 55 million active pay-TV users, and 37 million interactive on-demand users, maintaining a relatively wide range of users.

1Q24 The operating efficiency of the main business is or is relatively stable, but profits are affected by changes in fair value and other earnings.

The company's 1Q24 gross margin was 32.8%, a year-on-year decrease of 0.5ppt; the 1Q24 sales expense ratio, management expense ratio, and R&D expense ratio were 10.0%, 11.6%, and 2.9%, respectively, and remained basically stable year over year. We judge that the operating efficiency of the company's main business is or relatively stable. However, 1Q24's fair value change earnings and other earnings declined markedly year-on-year, and 1Q24's net profit was affected by its fluctuations.

Focus on the development potential of smart radio and television finance media and the company's ability to integrate resources. According to the company announcement, based on the smart radio and television ecosystem, the company plans to continue to promote media integration and industrial integration. Relying on a wide range of users, the company plans to join forces with Shanghai Radio and Television and Shanghai Culture Radio, Film and Television Group Co., Ltd. (SMG) to improve users' cultural and entertainment consumption needs and experiences through innovative product systems, expanding marketing channels, and enhancing digital capabilities. It is recommended to focus on the company's smart radio and television media development potential.

Profit forecasting and valuation

Due to the impact of other earnings and asset impairment losses, we lowered our 2024/2025 net profit forecast by 27.7%/24.4% to $708/768 million. The current stock price corresponds to 34.5/31.8 times 2024/2025 P/E. Maintaining a neutral rating, taking into account profit forecast adjustments and resource integration capacity expectations, we lowered our target price by 10.5% to 6.3 yuan, corresponding 30/28 times the 2024/2025 P/E. There is 13.2% downside compared to the current stock price.

risks

Competition has abated, and the promotion of new business has exceeded expectations.