1H24 results are basically in line with market expectations

The company announced 1H24 results: revenue of 1.06 billion yuan, down 2.9% year on year; net loss due to mother of 44.77 million yuan, falling into the range of 38.59 million yuan to 56.69 million yuan in the company's performance forecast; net loss after deducting non-return to mother of 25.06 million yuan, slightly lower than the company's performance forecast net loss of 2.78 million yuan to 20.89 million yuan, mainly due to cable TV watching maintenance fees and information Business revenue and channel revenue have declined, and operating costs such as program content fees and technical service fees have increased; at the same time, the fair value of financial assets held by the company has decreased, which ultimately led to a decline in the company's net profit.

Development trends

The traditional cable TV industry continues to be under pressure, actively promoting business transformation and development. The company's 1H24 cable TV viewing and maintenance revenue was 0.4 billion yuan, down 2.8% year on year; cable TV subscription fee revenue was 94.06 million yuan, down 15.1% year on year. We believe that the traditional cable TV industry faces competition from multiple markets such as IPTV, Internet TV, and mobile video. There are problems such as loss of users, increased costs, declining profits, and insufficient supply of high-quality content resources. However, at the same time, the company is also expected to promote business transformation and upgrading by promoting the integration of cable television networks and the integrated construction of radio and television 5G, and open up innovative business growth lines.

2Q24 revenue declined year-on-year, and net profit was affected by changes in the fair value of financial assets and income tax policy adjustments. The company's 2Q24 revenue fell 6.4% year on year, gross margin was 2.4%, down 11.7ppt year on year. We believe that the company's gross margin fluctuated greatly in 2Q24, mainly due to rising operating costs such as program content fees and technical service fees. However, the company's 1H24 net profit turned into a year-on-year loss, which was mainly affected by non-recurring profit and loss items and income tax policy adjustments. Among them, the loss was 26.44 million yuan due to changes in the fair value of the company's 1H24 financial assets.

Pay attention to the development of government and enterprise affairs, and insist on reducing costs and increasing efficiency. The company stated in its 2024 mid-year report that in the first half of 2024, the company's government and enterprise revenue increased somewhat year-on-year, mainly from: 1) the construction of a municipal emergency broadcasting platform in Beijing, which has deployed multiple pilot terminals in accordance with the requirements of the “National Urban-Rural Integrated Emergency Broadcasting Pilot Area” project; 2) cultural digitization projects, implementing and formulating an exclusive logo analysis system for cultural data; 3) actively promoting the IoT card project. We believe that the company will focus on government and enterprise business, actively promote 5G integration of radio and television, insist on reducing costs and increasing efficiency, or contribute to the long-term development of the business.

Profit forecasting and valuation

Due to pressure on the company's cable TV business, we reduced 2024/2025 revenue by 6.7%/1.6% to 2.38 billion yuan/2.6 billion yuan, and net profit by 110.3% and 12.1% to loss of 34.02 million/profit of 0.3 billion yuan. The current share price corresponds to 27.4 times 2025 P/E. Maintaining an outperforming industry rating and considering the reduction in profit forecasts, we switched to a 30-fold P/E valuation in 2025 and lowered the target price by 7.5% to 6.48 yuan, which has 9.6% upside compared to the current stock price.

risks

State Grid integration and 5G commercial progress in radio and television fell short of expectations, industry competition intensified, and user retention declined.