Core views
On the revenue side, the basic daily consumption market grew steadily. By industry, 1H24 accounted for 64% of daily consumption revenue, +3.4pct; by channel, cinema media revenue was 0.454 billion yuan, an increase of 20.75% year over year, and the performance was steady despite the decline in box office during the same period.
Profitability continues to increase. The net profit margin for 2Q24 was 44.89%, up 1.03pct year on year. The main reason was the gross profit margin of 68.04%, up 2.25pct year on year, setting a new high in Q2 in the past 5 years.
Looking ahead to Q3, we expect the Olympics to be very popular. Combined with the State Council's consumer promotion policy to expand domestic demand, the enthusiasm of advertisers such as Japanese consumption and the Internet is expected to increase; in the medium to long term, the company's downturn and expansion will accelerate, and overseas are expected to achieve profits after experiencing point expansion, contributing to increased performance.
The 2024-2026 revenue is expected to be 12.87 billion, 13.858 billion, and 14.823 billion, up 8.12%, 7.68%, and 6.96% year-on-year; net profit to mother is 5.297 billion, 5.705 billion, and 6.125 billion, up 9.73%, 7.36% year-on-year. PE corresponding to the closing price on August 9 is 15.8x, 14.6x, and 13.6x.
occurrences
The company released its 24-year semi-annual report. In the first half of the year, it achieved operating income of 5.967 billion yuan, an increase of 8.17%; net profit to mother of 2.493 billion yuan, an increase of 11.74% over the previous year; net profit after deducting non-return to mother of 2.197 billion yuan, an increase of 11.43% over the previous year. In the second quarter, the company achieved operating income of 3.238 billion yuan, an increase of 10.05% over the previous year; net profit of 1.453 billion yuan, an increase of 12.65% over the previous year; net profit after deducting non-return to mother of 1.252 billion yuan, an increase of 6.82% over the previous year.
The company announced a semi-annual profit distribution plan. The company plans to distribute cash of 0.10 yuan (tax included) for each share for the half year, with a total cash dividend of 1.444 billion yuan, with a dividend rate of 58%.
Brief review
1. The share of household consumer goods revenue continues to rise, and cinema media revenue is steady
By industry, the basic market for consumer goods is stable, and the share of revenue continues to rise. Consumer goods, the largest industry in 1H24, achieved revenue of 3.815 billion yuan, an increase of 14.23% over the previous year; accounting for 63.94% of total revenue, an increase of 3.40 pcts over the previous year. 1H24 domestic net zero increased 3.7% year over year. In a situation where the economy is recovering weakly, the steadiness of consumer goods advertising is once again verified: consumer goods usually have the characteristics of a popular customer base and high frequency and low price. On the one hand, there are many homogenized products, and users' brand loyalty is low, so consumer goods usually require high exposure to occupy users' minds; on the other hand, consumer goods are usually just needed, and sales are less affected by the macroeconomy, and brand marketing also needs to maintain stability accordingly.
1H24 Real estate and home furnishings grew year on year, and the Internet continued to shrink. Among them, real estate and household revenue increased 28.67% year on year, and the share of revenue increased 0.74 pct to 4.63% year over year. Mainly when real estate policies were relaxed, new home advertisements such as Red Star Macalline, Left and Right Home, and Guanzhu Tiles were updated; Internet revenue fell 16% year on year, accounting for 8.72% of revenue, down 2.49 pct year on year. It is expected that e-commerce platforms such as Taobao and Tmall have declined a lot.
Looking at products, the building media grew steadily, while the cinema media bucked the trend. 1H24 Building Media's revenue was 5.505 billion yuan, up 7.25% year over year. According to CTR media intelligence, 1H24 elevator LCD and elevator poster advertising expenses increased by 22.9% and 16.8% year-on-year, all higher than the revenue growth rate of popular building media, mainly because, on the one hand, CTR data calculates advertising expenses based on publication prices; on the other hand, according to the company's announcement, starting in July 2023, the publication prices for the company's elevator TV media network, elevator posters, and elevator smart screens have resumed regular price increases. We expect a 10% increase in the monthly publication price for January 24, thus driving CTR data to achieve a significant increase. However, in the case of a weak macroeconomic recovery, advertisers' advertising demand may be affected to a certain extent, causing the actual publication price to be lower than the officially announced publication price, and as a result, the company's actual revenue growth rate is lower than the growth rate of media advertising spending calculated by CTR.
The cinema media performed well. With the national box office falling 9% year on year in the first half of the year, 1H24's cinema media revenue was 0.454 billion yuan, up 20.75% year on year, mainly due to the low base last year (1H23 revenue down -3.80% year on year), and the resilience of movie-watching demand from January to May this year. The number of movie viewers fell only 0.70% year on year. The overall box office decline was mainly driven by a decline in ticket prices.
2. Stable location, accelerated point expansion in low-tier cities
Beginning in the second half of 2019, the company continued to optimize and sort out the building media resource network while expanding high-quality resource points, and the overall expansion of subsequent locations was steady. As of 7/31, the total number of ladders was 3.133 million, an increase of 11.02% over the previous year, an increase of 3.91% over the end of 23, and a decrease of 2.93 pcts from July-December '23.
1) By city level:
As of the end of July, the number of first-tier cities was 0.697 million units (up 1.8% from the end of 2023, +0.012 million units), accounting for 22.2%, including 0.268 million elevator TV media (up 5.9% from the end of 2023, +0.015 million units) and 0.429 million elevator poster media (down 0.7% from the end of 2023, -0.003 million units). The growth rate in July 2024 compared to the end of 2023 was 4.3pct compared to July-December 2023.
As of the end of July, the number of second-tier cities was 1.488 million units (up 1.3% from the end of 2023, +0.019 million units), accounting for 47.5%, including 0.58 million elevator TV media (up 4.9% from the end of 2023, +0.027 million units) and 0.908 million elevator poster media (down 0.9% from the end of 2023, -0.008 million units). The growth rate in July 2024 compared to the end of 2023 was -2.7 pct compared to July-December 2023.
As of the end of July, the number of third-tier cities was 0.286 million units (up 8.3% from the end of 2023, +0.022 million units), accounting for 9.1%, including 0.093 million elevator TV media (up 45.3% from the end of 2023, +0.029 million units) and 0.193 million elevator poster media (down 3.5% from the end of 2023, -0.007 million units). The growth rate in July 2024 compared to the end of 2023 was +4.8pct compared to July-December 2023.
Judging from the current location situation, the company has basically laid out high-quality locations in Tier 1 and 2 cities, compounded by weak macroeconomic recovery over the past 24 years. The rate of point expansion in such cities has declined markedly. However, the company still has a lot of room for development in low-tier cities. Currently, the 0.286 million points are significantly lower than the 2018 high of 0.521 million, and 1H24 expansion is accelerating. In July of this year, the company announced that it will work with Meituan to promote elevator video media operation cooperation in low-tier cities. The plan to recruit elevator advertisers in the sinking market described in the article published on Meituan's takeaway partner city's public account is currently a collaborative project. We expect that subsequent cooperation will give full play to the resource advantages of Meituan's local lifestyle businesses in low-tier cities and help the public restart and expand the sinking market.
2) By media type:
The total number of elevator TV media reached 1.181 million at home and abroad by the end of July, an increase of 11.7% over the end of 23. Among them, there were 0.941 million domestic self-managed media, up 8.2% month-on-month, down 4.53pct from July-December '23; 0.156 million overseas self-operated media, up 14.70% month-on-month, and 1.37pct higher than July-December '23. Currently, overseas media cover the Hong Kong Special Administrative Region and about 100 major cities in South Korea, Thailand, Singapore, Indonesia, Malaysia, Vietnam, India, and Japan, an increase of about 5 cities over the end of '23.
The total number of elevator poster media reached 1.952 million at home and abroad by the end of July, a decrease of 0.3% from the end of 23. Among them, the number of domestic self-operated media declined and is expected to be replaced by television media with lower operating and maintenance costs; the number of overseas self-operated media was 0.019 million, an increase of 18.80% over the previous year. Currently, overseas media cover the Hong Kong Special Administrative Region and major cities in Thailand, Malaysia, and India.
3. Profitability: Q2 gross margin hit a new high in the second quarter of nearly 5 years
1H24 achieved a net profit margin of 41.79%, an increase of 1.14pct over the previous year, and an increase of 1.34pct over the previous year; of these, 2Q24 achieved a net interest rate of 44.89%, an increase of 1.03pct over the previous year, a record high in second-quarter results over the past 5 years, mainly driven by gross profit margin, government subsidies, and overseas travel:
Gross profit margin: 2Q24 gross profit margin was 68.04%, up 2.24pct year on year. It also hit a record high for the second quarter in the past 5 years. The gross margin of the cinema media business is expected to increase by 11 pcts to 75.0% year on year, and the expansion of locations in low-tier cities is accelerating, and overall location rental costs have also declined.
Looking at the single-point cost of building media, 1H24 was 639.25 yuan/unit, down 4.74% year on year and 4.14% month-on-month. They have all shown a downward trend since '21, and the operating leverage of elevator media is becoming more and more evident.
Government subsidies: Statistics government subsidies that include current profit and loss for each period of time. 2Q24 was 0.138 billion, 0.09 billion more than 0.048 billion in 2Q23.
In terms of revenue, 2Q24 was 4.26%, up 2.63 pcts year on year; 1H24 was 4.96%, up 1.76 pct year on year.
Going overseas: Since 2017, the company has continued to develop in the Asia-Pacific region, and has successively established local operators in countries and regions such as Singapore, South Korea, Japan, Thailand, Malaysia, Indonesia, and Hong Kong. The company currently has 13 overseas subsidiaries in operation. 1H24 achieved a total net profit of 72.58 million yuan, of which only the Singaporean subsidiary made a profit. 1H24 achieved net profit of 17.2586 million yuan, a year-on-year decrease of 11%. It is expected that the company will accelerate its overseas location, and profits will be affected in the short term.
Fourth and third quarter outlook: The Olympics and consumer promotion policies are expected to drive launch
The Olympics are very popular, and Olympics-related advertisements are being actively advertised. Based on our weekly sampling of smart elevator screens in Dongcheng District business buildings, consumer goods for daily use have been strong since the end of June. The average sales time in July was 82%, an increase of 3/9 pcts over the previous month of May and June, and an increase of 13 pcts over the previous year. Junlebao is a new sponsor of China's top ten national teams and has maintained TOP1 sales for 4 consecutive weeks; since the end of July, Suntory, Yili, Dongpeng Special Drink, Blue Moon, etc. have all launched Olympic materials; Budweiser has launched new advertisements to suit the spectator scene. In addition to the Olympics, 3Q23 also has traditional peak marketing seasons such as Mid-Autumn Festival and National Day. Since this year, holiday spending has been strong, and is expected to further contribute to the increase.
Since Q2, there have been many new daily sales advertisers. According to our sampling results, Q2 added 6 advertisers every month, for a total of 18, of which 16 were consumer goods for daily use, including Blue Moon, Nature, Li Ning, SK-II, etc. SK-II and Blue Moon have been among the top 10 advertisers for advertising time many times.
The rest is Air China and U Service to the home (one-stop family service platform).
“Opinion” points out that it is necessary to expand domestic demand and deepen supply-side structural reforms in an integrated manner, stimulate dynamic energy within service consumption, and cultivate new growth points for service consumption. The “Opinion” proposes 20 key tasks in 6 areas. Among them, in terms of stimulating the vitality of improved consumption, the “Opinion” focuses on five areas: cultural and entertainment consumption, travel consumption, sports consumption, education and training consumption, and housing service consumption.
Investment advice: On the revenue side, the 2Q24 company's revenue grew steadily, once again verifying that the basic consumer goods market investment was stable in the face of weak economic recovery; on the profit side, the 2Q24 net interest rate hit a new high in the second quarter of the past 5 years, mainly due to the continuous decline in single-point costs, which drove the overall gross margin to a new high in the second quarter of the past 5 years. Looking ahead to Q3, we expect the Olympics to be very popular. Combined with the State Council's consumer promotion policy to expand domestic demand, the enthusiasm of advertisers such as Japanese consumption and the Internet is expected to increase; in the medium to long term, the company's downturn and expansion will accelerate, and overseas are expected to achieve profits after experiencing point expansion, contributing to increased performance.
The 2024-2026 revenue is expected to be 12.87 billion, 13.858 billion, and 14.823 billion, up 8.12%, 7.68%, and 6.96% year-on-year; net profit to mother is 5.297 billion, 5.705 billion, and 6.125 billion, up 9.73%, 7.36% year-on-year. PE corresponding to the closing price on August 9 is 15.8x, 14.6x, and 13.6x.
Risk warning: macroeconomic risk, risk of copyright protection falling short of expectations, risk of loss of IP influence, risk of interruption of cooperation with IP or celebrities, risk of changing public aesthetic orientation, risk of increased competition, risk of low user willingness to pay, risk of difficult changes in consumption habits, risk of corporate governance risk of content launch falling short of expectations, risk of insufficient development of generative AI technology, risk of difficult product development, risk of product launch delays, risk of rising marketing purchase costs, risk of loss of talent, The risk of rising labor costs, the risk of policy regulation, and the risk that commercialization capacity falls short of expectations.