Core views
The company is deeply involved in the IPTV and OTT businesses, and its performance stability, cash reserves and dividend ratio all rank among the industry:
1) Profitability is stable, with positive profit growth over the past 5 years. The high-margin IPTV and OTT business accounted for 91% of revenue in '23, and gross margin and net profit margin were 52% and 46%, respectively. Net profit to mother has been growing positively in the past 5 years, with a CAGR of 16% in 19-23.
2) Stable cash flow and a high share of cash reserves: By the end of '23, general cash and cash equivalents exceeded 3.4 billion yuan, all of which are highly liquid monetary funds, accounting for 42% of the current market capitalization, which is at the industry average level;
3) The dividend scale reached a record high in 23, with an expected dividend rate of 5.3% in 24, ranking among the media's high dividend targets: the company's dividend amount and dividend rate have continued to increase in the past 5 years. For the first time in '23, the dividend was reported semi-annually, and the total dividend rate for the whole year reached 60%. Assuming that the dividend amount remains unchanged in '24, the company's expected dividend rate for '24 is 5.3%, second only to Xinhua Wenxuan (HK Stock) and FanZhong Media.
We expect the company's 24-26 revenue to be 15.8, 16.8, and 1.77 billion yuan, up 3.7%, 6.5%, and 5.4% year-on-year; net profit to mother of 6.2, 6.6, and 690 million yuan, up -12.5%, 6.4%, and 5.1% year-on-year. The closing price on June 27 corresponds to PE 13.0x, 12.2x, and 11.6x.
1. Profits are stable and profit margins are high. The average profit growth has been positive in the past 5 years. Xinmedia shares focus on IPTV and OTT businesses, and profit margins have remained high for a long time. Xinmedia Co., Ltd. is a radio and television company in Guangdong Province. The main IPTV and OTT businesses are stable and contribute more than 90% of revenue. In '23, IPTV basic business and Internet audiovisual business (including IPTV value-added business and Internet TV) achieved revenue of 809 million yuan and 606 million yuan respectively, up 9.14% and 7.31% year-on-year, accounting for 91.38% of the company's revenue. Since the company focuses on the IPTV and OTT businesses and rarely lays out businesses with low profit margins such as video shopping and advertising, the company's profitability performance is impressive:
1) The gross margin is stable at more than 50%, which is significantly higher than other publishing and broadcasting companies. The company's gross margin both exceeded 50% in 2019-2023, which is significantly higher than the publishing and radio and television industry average of about 30%. Mainly, IPTV and OTT businesses have license barriers. Generally, gross margins are high, and the company's two businesses account for more than 90% of revenue. The company's operating costs are mainly copyright content and broadcast control fees. The proportion of operating costs has remained stable between 70% and 75% over a long period of time. It means that the company pays copyright fees to TV stations and other copyright parties at all levels and broadcast control fees paid to Guangdong Radio and Television.
2) The net interest rate to mother is stable at over 40%, which is significantly higher than that of other publishing, radio and television companies. In 2019-2023, the company's net interest rate to mother was over 40%, which is also significantly higher than the publishing and radio and television industry average of about 10%. Mainly, gross margins are high, and there are almost no non-main businesses such as investment or depreciation that disrupt profits.
3) Profitability is stable, with positive profit growth over the past 5 years. In 2019-2023, the company's net profit growth rates were 93%, 45%, 18%, 2%, and 2%, respectively, all of which achieved positive growth. Among them, operating income grew steadily in 22 and 23, mainly when the net interest rate to mother was stable. Net profit growth rate was high in 2020 and 21, mainly because IPTV value-added business and OTT business were in a period of rapid growth, driving revenue growth of 23% and 15% over the previous year, respectively; the combined cost control was better. Expense rates for the 20-21 period were 8.62% and 5.51%, which decreased by 5.55 pct and 3.11 pct from the previous year, respectively.
1Q24 After excluding the impact of income tax, the profit side is still growing. The 1Q24 company achieved net profit of 148 million yuan, a year-on-year decrease of 13%, mainly due to changes in income tax policy, which led to the 1Q24 corporate income tax rate of 15% compared to 1% in the same period last year. In terms of total profit, 1Q24's total profit was 174 million yuan, an increase of 2% over the previous year, and still maintained steady growth.
2. Stable cash flow and high share of cash reserves
Net cash inflows from operating activities account for more than 85% of net profit attributable to mother, and the profit quality is high. The net cash inflows from the company's operating activities in 2019-2023 were 4.62, 5.25, 10.45, 10.06 billion yuan and 625 million yuan respectively, accounting for 117%, 91%, 154%, 145% and 88% of net profit attributable to mother, respectively. Among them, there was a slight decline in cash flow in 23, mainly due to a decrease in cash received from selling goods and providing services compared to 22, and an increase in copyright payments and operating expenses attributable to partners compared to 22. The net cash inflow from the company's operating activities accounts for a relatively stable ratio of net profit to the mother, and the soundness is similar to that of a publishing company.
Cash reserves are abundant. Generalized cash and cash equivalents account for 42% of the market value, which is on average in the publishing and radio and television industries. We calculate the generalized cash and cash equivalents of each company based on the five major items of monetary capital, transactional financial assets, non-current assets due within one year, other current assets, and other non-current assets at the end of 23, excluding amounts unrelated to general cash and cash equivalents such as deposits. By the end of '23, Xinmedia Co., Ltd. had broad cash and cash equivalents of $3.04 billion, all of which were monetary funds, and had high liquidity. From a valuation perspective, the company's general cash and cash equivalents account for 42% of the latest market capitalization, which is at the average level of the publishing and radio and television industries.
3. The dividend rate is expected to be 5.3% in '24. The first semi-annual dividend was paid in 23, and the dividend amount and dividend rate have continued to increase in the past 5 years. In 2019-2023, the company's dividend amount increased from 116 million yuan to 426 million yuan, and the dividend rate also increased from 29% to 60%. The dividend amount and dividend rate have continued to increase in the past 5 years for radio and television companies. In '23, the company paid a semi-annual dividend for the first time. The dividend amount was 183 million yuan, compounded by the year-end dividend of 243 million yuan. The total dividend amount for the whole year was 426 million yuan, and the dividend rate reached 60%.
The expected dividend rate of 5.3% for 24 is the top of the list of high-dividend targets in radio, television, and media. We assume that the amount of dividends for each company in '24 is the same as in '23. Based on the closing price on June 27, the expected dividend rate for Xinmedia Shares in '24 is 5.3%, second only to Xinhua Wenxuan (HK Stock) and FanZhong Media.
Investment advice: The company is deeply involved in the IPTV and OTT businesses. The stable performance, cash reserves and dividend ratio all rank among the industry: 1) Stable profits, and the only radio and television company that has achieved positive profit growth in the past 4 years. High-margin IPTV and OTT businesses account for more than 90% of revenue. Gross margin and net profit margin stabilized at 50% and 40%, respectively. Net profit to mother grew positively in 2020-2023; 2) Cash flow is steady, and cash reserves account for a high proportion:
By the end of 23, general cash and cash equivalents had exceeded 3.4 billion yuan, all of which were highly liquid monetary funds, accounting for 42% of the current market capitalization, which is at the industry average; 3) The expected dividend rate for 24 years was 5.3%, ranking among the media's high dividend targets: the company's dividend amount and dividend rate continued to rise in the past 5 years. For the first time in '23, the total dividend rate reached 60%. Assuming that the dividend amount remains unchanged in '24, the company's expected dividend rate for '24 is 5.3%, second only to Xinhua Wenxuan (HK Stock) and FanZhong Media.
We expect the company's 24-26 revenue to be 15.8, 16.8, and 1.77 billion yuan, up 3.7%, 6.5%, and 5.4% year-on-year; net profit to mother of 6.2, 6.6, and 690 million yuan, up -12.5%, 6.4%, and 5.1% year-on-year. The closing price on June 27 corresponds to PE 13.0x, 12.2x, and 11.6x.
Risk analysis
Risk of changes in income tax policies, risk of business expansion outside of the province falling short of expectations, risk of user growth falling short of expectations, risk of growth in payment rates falling short of expectations, risk of macroeconomic fluctuations, risk of declining population, risk of changes in radio and television policies, risk of content policy regulation, risk of changes in user consumption habits, risk of insufficient copyright protection, risk of loss of copyright resources, risk of undefined intellectual property rights, risk of declining IP influence, risk of changes in popular aesthetic orientation, risk of increasing discounts on online store channels, insufficient expansion of new business Expected risk, risk of investment transformation failure, risk of generative AI technology falling short of expectations.