Key points of investment:
In November, December 2019, and July 2020, we published reports explaining the company's competitive advantage and the logic of recovery at the bottom of the cycle; the March 2021 report explained the company's growth in terms of advertisers' demand and media supply; and the September 2022 report also discussed the company's margin of safety and long-term space. This report focuses on analyzing the future dividend sustainability and potential growth potential of FanZhong Media, which has emerged from a slump in the industry.
Judging from the climate, customers, and pattern, the leading enterprises of Ladder Media are steady and sustainable. (1) Revival of the media landscape: There is no contradiction between e-commerce and local lifestyle platforms, and the high growth of social short video advertisements: 1) Sales transformation of such channels. Competitors are not brand advertisements but various sales channels; 2) The increase in the length of short video social networking time has not reduced the exposure value of elevator scene advertisements.
(2) Customer structure review: Internet customers drove revenue growth in 15-19, but were greatly affected by Tier 1 financing. After 19 years, the share of consumer customers continued to rise, and the performance was resilient. What remains unchanged is that the company relies on a national high-frequency media network to become a water seller for the brand to seize the minds of users. (3) Reviewing the competitive landscape: The core of media competition is not only the scale of points, but the amount of exposure of media resources to mainstream target groups. Currently, elevator advertisements are one big and one small. FanZhong Media covers KA customers with LCD+ community posters in core locations in Tier 1 and 2 cities as its core product, and has gradually expanded smart screens to cover small and medium-sized customers in recent years; most of the trendy media sites are community media, covering local customers, and later expanding LCD, so the single-screen revenue of Focus Media is higher than that of rivals. After 19 years, Focus has shrunk its inefficiency points, single-screen operating costs have declined, and the influence of rivals has clearly weakened.
The income statement and cash flow statement look at the company's ability to continue to pay dividends. (1) Revenue and profit recovery: Revenue resilience: optimization of customer structure, strong consumer product launch resilience; competition improvement: after competition slows down, inefficiency points are reduced, single-screen costs are reduced, and the impact of bad debt losses is expected to rise significantly to more than 5 billion dollars in the future. (2) Cash flow recovery: After 19 years, the cash flow/net profit from the company's operating activities was greater than 1. The company strengthened receivables management, and the number of receivable turnover days dropped markedly after 2018, and the consumer goods industry, which continued to increase, the customer repayment quality was higher than that of the Internet industry. (3) Over the past 15 years, the company has accumulated cash dividends of 25.7 billion yuan (including 4.766 billion yuan declared in 2023), accounting for 65.5% of net profit, and declared that the 24-26 dividends will not be less than 80% after deducting non-profits.
Sinking+LBS+ going overseas, accumulating energy for medium- to long-term growth. (1) Advertisers' budgets have sunk, and in '23, the number of points in third-tier cities has resumed growth. (2) The smart screen layout LBS leverages the increase in local life: it is expected to achieve 500,000 points and an income space of 6.1 billion yuan to 6.7 billion yuan. (3) Overseas market layout: Currently, it has 172,000 overseas media equipment. Referring to the 1%-2% share of domestic elevator advertisements, it is estimated that overseas elevator advertisements are expected to reach 67-13.4 billion yuan in mid-term revenue.
Investment Ratings and Valuations: Maintain a buy rating. Maintaining the 24-26 profit forecast, the 24-26 revenue is expected to be 125.25/134.73/14.622 billion yuan; net profit to mother is estimated to be 53.11/58.50/6.588 billion, an increase of 10%/10%/10% over the previous year. The intrinsic value of the company under FCFF is 9.19 yuan/share, with a market capitalization of 132.7 billion yuan, maintaining the purchase rating.
Risk warning: There is a risk that the boom in the consumer goods industry will decline further, and the risk that technological changes beyond expectations will change the media landscape.