Incidents:

On October 29, 2024, Focus Media announced the 2024Q3 quarterly report, 2024Q3 revenue of 3.294 billion yuan (YOY +4.30%), net profit attributable to mother 1.475 billion yuan (YOY +7.59%), after deducting non-return net profit of 1.344 billion yuan (YOY +4.54%).

Investment highlights:

2024Q3 performance is in line with expectations, and operations are steady:

(1) 2024Q3 revenue increased year-on-year. 2024Q1/Q2/Q3 revenue was 2.73/3.238/3.294 billion yuan, YOY +6.02%/+10.05%/+4.30%, QOQ -15.43%/+18.61%/+1.73%; net profit to mother was 1.04/1.453/1.475 billion yuan, YOY +10.50%/+12.65%/+7.59%, QOQ -15.10%/+39.71%/+1.51%; 0.945/1.252/1.344 billion yuan, YOY +18.17%/+6.82%/+4.54%, QOQ -15.40%/+32.49%/+7.35%, 2024Q3 revenue/net profit all increased slightly year-on-month. Net profit margins for 2024Q1/Q2/Q3 were 37.13%/44.45%/44.06%, up +0.35/0.98/+1.08 pct from the same period in 2023; gross margins were 61.69%/68.04%/68.19%, respectively, 0.13/+2.25/-0.05pct compared to the same period in 2023, and gross margins were stable.

(2) Cost control is better. 2024Q1/Q2/Q3 operating costs were 1.046/1.035/1.048 billion yuan, YOY +6.37%/+2.83%/+4.49%, QOQ -6.38%/-1.02%/+1.27%; period expense rates were 21.35%/22.47%/23.03%, respectively, compared to 2023, -1.13/+1.95/+2.39pct, of which sales expense ratio was -1.20/+0.80/+1.24pct yoy.

(3) Accounts receivable increased year over year. At the end of 2024Q1/Q2/Q3, accounts receivable were 1.921/2.408/2.572 billion yuan, YOY +53.43%/+52.60%/+60.05%, and QOQ +5.49%/+25.35%/+6.81%, respectively. The number of 2024Q1-Q3 accounts receivable turnover days was 64 days, an increase of 16 days over the previous year.

Elevator LCD advertising recovery is superior to the market, and diversified advertisers continue to expand:

(1) According to CTR, the total YOY spent on advertising from January to August 2024 was +3.1%, and YOY from January to August 2024 was +3.7%/+12.3%/+1.4%/-0.4%/-1.2%/+1.6%/+3.3%/+5.2%, respectively; from January to August 2024, elevator LCD advertising costs YOY were +24.3%, and elevator posters were +16.9%. The growth rate ranked in TOP1/2 of all media. Demand in the advertising market continues to recover steadily, and I am optimistic about elevator media Long-term value.

(2) Continue to expand diversified advertisers, and the number of consumer advertisers has increased. ① Consumption: Added Nai Xue's food and beverage advertisers such as Tea, Starbucks, Tea Baidao, Jasmine Yogurt, etc.; apparel advertisers such as Cat Man and GXG; beauty care advertisers such as Staf and Nature Hall; and home appliance advertisers such as TCL and Hisense. Others: Vehicle categories such as Avita, travel advertisers such as Chimelong, New Zealand Tourism Board, and Qingdao Polar Ocean Park have been added, and Internet advertisers such as Homework Help and Suning Tesco have been added.

Profit forecasting and investment ratings: We are optimistic about the long-term value of Ladder Media brand advertising. As a leader in offline brand advertising, the company will maintain high dividends in the future, and its performance is both resilient and flexible.

Based on this, we expect the company's revenue for 2024-2026 to be 13.072/14.04/14.985 billion yuan, and net profit to mother of 5.348/5.812/6.187 billion yuan, corresponding PE of 20/19/18X, maintaining a “buy” rating.

Risk warning: risks such as macroeconomics, sluggish advertising industry, overseas expansion falling short of expectations, increased industry competition, box office falling short of expectations, bad debts, loss of core talent, falling short of expectations in smart screen advertiser development, downward valuation center, management of investment targets, public opinion, etc.