Performance review

1H22 performance is basically in line with our expectations.

The company announced 1H22 results: 1H22 revenue was 1.077 billion yuan, down 7.6% from the same period last year; net profit from home was 51.78 million yuan, up 3.1% from the same period last year, deducting 12.93 million yuan from non-home net profit, down 76.7% from the same period last year. Of this total, the 2Q22 income was 558 million yuan, down 10.4% from the same period last year; the net loss of the parent was 45.91 million yuan, while the profit in the same period last year was 58.83 million yuan, deducting the non-return net profit of 21.71 million yuan, down 52.4% from the same period last year, which is basically in line with our expectations.

Trend of development

The overall development trend of the traditional cable TV industry is in a declining stage, which is affected by external competitive factors. From the perspective of the competition pattern, the competition in 1H22 IPTV, OTT and network video industry is still relatively fierce, and the viewing habits of traditional cable large screen users continue to shift to mobile and smart large screen. From the perspective of the separation of each business, 1H22 cable TV viewing maintenance / channel reception and transfer / engineering construction / advertising business / cable TV network revenue fell 4.5%, 11.3%, 44.3%, 20.2%, 7.0%, respectively, compared with the same period last year. We believe that the company is facing problems such as the loss of users, revenue has declined for six consecutive quarters compared with the same period last year, the superimposed 2Q22 epidemic in Beijing has been slightly repeated, the company's traditional cable TV business is still affected to a certain extent, and its short-term operation is under pressure.

2Q22 gross profit margin declined compared with the previous month, due to the fair value change loss caused by the decline in the share price of Guiyang and Guangzhou. On the gross margin side, 2Q22 gross profit margin is 7.5%, and gross profit margin fell by 6.1ppt and 3.0ppt respectively compared with the same period last year and month-on-month. At the expense end, the operating expense rate of 2Q22 increased slightly, and the sales rate, management rate and R & D rate increased 0.8ppt, 0.4ppt and 0.5ppt respectively compared with the same period last year. Due to the large drop in the share price of Guiguang Network, the financial assets held by 2Q22, the company realized a net loss of 68.76 million yuan in fair value changes in the current period, and its net profit turned into a loss compared with the previous month. However, excluding non-recurrent gains and losses such as government subsidies and net income from fair value changes, 2Q22 has a profit of 21.71 million yuan after deducting non-return net profit.

Pay attention to the commercialization progress of radio and television 5G business, the company's business technology innovation and business model need to be broken through.

1H22, the company focuses on the main line of "national cable TV network integration and integrated development of radio and television 5G construction", implements radio and television 5G construction and business preparation work, and takes the lead in realizing the trial operation of radio and television 5G service. We believe that the resource integration and business upgrading of the radio and television industry are expected to continue to advance in 2022, and the "national network integration" may accelerate the construction of 5G network and the maturity of 5G applications. New businesses such as media technology platform, ultra-high definition video, self-made copyrighted content and smart city have certain potential for development. We suggest that we should pay attention to the commercial progress of 5G in the radio and television industry and the development space of the company's new business related to 5G.

Profit forecast and valuation

We keep our profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to 31.1 times the 2023 PCME. To maintain the neutral rating, taking into account the medium-and long-term development potential of the radio and television 5G business, we switch to the 2023 Phammer E valuation and raise the target price by 23.3% to 9 yuan, corresponding to 33 times 2023 Pmax E, which has 4.5% upside compared to the current stock price.

Risk.

The epidemic repeatedly exceeded expectations, the commercial progress of national network integration and radio and television 5G was lower than expected, industry competition intensified, and the loss of users increased significantly.