Event: The company released its 2024 three-quarter report. The first three quarters of 2024 achieved operating income of 1.174 billion yuan (YoY +5.94%), realized net profit of 0.428 billion yuan (YoY -14.38%), and realized net profit deducted from mother 0.428 billion yuan (YoY -12.32%). The year-on-year decline was mainly due to the company no longer enjoying corporate income tax exemptions from 2024. Among them, 2024Q3 achieved operating income of 0.403 billion yuan (YoY +0.26%), realized net profit of 0.15 billion yuan (YoY -12.07%), and realized net profit of 0.15 billion yuan (YoY -10.04%). The gross margin/net margin reached 49.31%/36.41% (YOY-2.27pcts/-19.19pcts) in the first three quarters of 2024, and the sales/management/R&D expenses ratio reached 2.21%/3.15%/3.15%, with year-on-year changes of +0.14pcts/-0.27pcts/-0.18pcts, and the cost ratio remained stable.

The policy promotes intelligent iterative updates of set-top boxes, and the IPTV business is expected to continue to develop. As the only IPTV integrated broadcast control sub-platform operator in Guangdong Province, the company maintains stable cooperation with the three major operators including Guangdong Mobile in the IPTV business field. During the reporting period, the company actively carried out brand activities and online marketing activities to expand the user market and strengthen the influence of the “Xiyue TV” brand. On May 21, 2024, the National Development and Reform Commission and other departments issued the “Implementation Plan to Promote Equipment Renewal and Upgrading in the Field of Culture and Tourism”. Among them, the “Implementing High-Definition Ultra HD Equipment Renewal and Upgrading Action” charter proposes to encourage the acceleration of the promotion, popularization and intelligent upgrading and iteration of high-definition UHD televisions and TV set-top boxes, and encouraging television stations, radio and television production and broadcasting transmission agencies, network audiovisual platforms, etc. to accelerate the upgrading and system upgrading of broadcast transmission equipment facilities and systems to enhance the supply and transmission coverage capacity of IPTV companies.

The operating capabilities of Internet audiovisual business products have been upgraded, and the conversion of user payments has been continuously improved. Looking at the Internet audiovisual business segment, 1) IPTV value-added business: During the reporting period, the company focused on refined content operation, guaranteed the timeliness of introducing leading content and premium content, carried out online and offline member activities to meet diverse audiovisual and entertainment needs, and increase the stickiness and activity of platform users. 2) Internet TV business: During the reporting period, the company strengthened the refined operation of the two core products of Cloud Audiovisual Aurora Mobile and Cloud Audiovisual Small TV, strengthened IP content promotion Yu member marketing activities to effectively improve payment conversion capabilities; accelerated the operation of K-songs, short videos, etc., and continuously improved the product matrix. The company and Kuaishou jointly launched Cloud Video Express TV, covering content zones such as homemade short films, animation, food, games, etc., to provide a higher definition and more immersive large-screen audiovisual experience for short video enthusiasts; continued to promote smart terminal business cooperation with mainstream terminal manufacturers in the industry, Q3 Cloud Audiovisual Aurora Mobile Tencent Video collaborated with Tencent Video to broadcast exclusive Tencent video content such as “Sauvignon Blanc 2” to establish a closed loop of “content+platform+terminal” operation.

The content copyright business relies on content integration and production innovation to break the game and continue to build a content matrix. 1) Content production and operation:

The company further expanded the Xi-Yue TV media library. The children's film “School Detective” was broadcast in theaters during the reporting period, including the Guangdong-Hong Kong-Macao Greater Bay Area Short Drama Strategic Cooperation Project directed by Hong Kong's Wang Jing, the Lingnan Cultural Digital Communication Research Institute project, the “Golden House” children's dynamic picture book, the high-speed rail “Happy Guangdong TV” section project, and the cartoons “Super Train Man (Season 3)” and “Hululu Phantom Team”. The children's film “School Detective” was broadcast in theaters on August 3. It premiered at the Beijing Poly Theatre on August 7, and many others participated in the competition Animations and children's movies have entered the production stage one after another. 2) Private network business outside the province: The company actively expands the IPTV market outside the province, enters Jiangsu Cable Radio and Television Top Box, and continues to advance steadily in value-added services such as “Xiyue TV-Aurora”. 3) Cable TV value-added business:

The company strengthens the development and operation of products such as film, television, music, e-sports, microphones, etc., and enriches the forms of value-added cable TV products.

Profit forecast and rating: The company's IPTV+ Internet audiovisual business is progressing steadily, but investment in the content copyright business has increased or affected the company's gross profit margin, and the corporate tax rate has increased dramatically since 2024. We have adjusted the profit forecast. The company is expected to achieve net profit of 0.57/0.62/0.66 billion yuan in 2024-2026, and the current market value corresponding to PE is 17/15/14 times. Maintain an “Overweight” rating.

Risk warning: macroeconomic risks, policy and regulatory risks, changes in IPTV and Internet TV licensing.