Event: the company announced its semi-annual report for 2018: realized operating income and net profit of 1.756 billion yuan and 35.2524 million yuan, up 79.24% and 71.02% respectively, and basic earnings per share of 0.13 yuan, up 62.5%.
The company's performance has increased significantly compared with the same period last year, mainly as follows:
(1) the performance of this part of the company is excellent. Our digital marketing is mainly content-oriented video advertising (one of the fastest growing areas of Internet marketing), and works closely with mainstream, web and short video media with strong endogenous growth. The reason why the company's endogenous performance far exceeds the growth rate of the digital marketing industry is that although the financial advertising revenue based on digital media is classified into the digital marketing section, in fact, the company's strategic layout creativity, content marketing and other high-growth areas. The company's creative business income is about 100 million yuan in 2017 (excluding Zhuhai Shantong and Shanghai Zhiqu), and more than 200 million yuan in the first half of 2018 (company research). According to CTR,2017, China's digital video audience grew by 7% year-on-year, reaching 569 million (the highest in the world), and the mobile video advertising budget of advertisers increased by 41% year-on-year. IResearch predicts that video advertising revenue in 2017 will reach 41.26 billion yuan (about 15% of the total scale of digital marketing), a year-on-year growth rate of 51.8%, much higher than the average growth rate of digital marketing revenue (CTR estimates that Internet marketing grew only 12.4% year-on-year in 2017, falling to 5.4% in the first half of 2018).
(2) Zhuhai Shitong (100% equity) and Shanghai Zhiqu (60% equity) were consolidated in the fourth quarter of 2017, and their performance in the first half of 2018 was significantly thicker than that of the same period last year. At the same time, the remaining 40% of Shanghai Zhiqu was transferred in June 2018, and the results in the second half of the year are to be expected. We believe that the acquisition of assets and the main business of the company will form an effective coordination. First, the acquisition can integrate media and customer resources, complement each other to form a synergistic effect, strengthen the competitive advantage of Internet video, expand the scope of marketing services through the layout of vertical mobile marketing, and enhance the value of advertising; second, the rapid growth of revenue from Zhuhai Shantong and Shanghai fun effectively thickens the company's performance. The segment market cut into by Shanghai Zhiqu is still in a period of rapid development, which is deeply bound to the head vertical field App (advertiser + media owner dual role) and promotes its rapid growth, with high bargaining power (basically becoming the top several or even the largest advertisers of App) Zhuhai Shitong benefits from the rapid development of the video advertising industry, and its rapid revenue growth corresponds to a higher rebate policy, which effectively hedges the risk of overall decline in rebates under the concentration of media traffic, which is conducive to stabilizing the company's gross profit margin.
(3) the revenue of the advertising industry is confirmed to have seasonal changes, and the main performance is concentrated in the second half of the year.
We estimate that in 2018, the revenue of the company's TV media and digital marketing business is about 1.2 billion yuan respectively, and the corresponding net profit is about 30 million yuan; the revenue of Zhuhai Shitong and Shanghai fun is about 1 billion yuan and 800 million yuan, respectively. The corresponding net profit is about 70 million yuan and 60 million yuan respectively (of which Shanghai fun is expected to be 50 million yuan).
Deepening layout content production and content marketing is expected to have a positive impact on performance.
(1) on the media side, the company deeply binds Jinri Toutiao, Douyin, KE Holdings Inc. Video and other head short video media and MCN to explore micro-variety and light variety show modes. New types of programs such as micro-variety and light variety meet the needs of users for fragmented entertainment, with an average duration of about 15 minutes, accompanied by the rapid rise of short videos, such as the star individual variety show "roaming the World," the duration of each program is 3-8 minutes. The maximum number of broadcasts per episode is up to 18.79 million, covering mainstream young consumers and with greater advertising value. Acquire many high-quality vertical fields top APP through M & A, and establish long-term channel cooperation with more than 200 high-quality mobile media, such as Zhihu Inc., NetEyun Music, Music Power, course Grid, Snowball, Trip.com, Hornet Honeycomb, understanding Ball Emperor, etc. It also maintains good cooperative relations with CCTV, provincial satellite TV (such as Zhejiang, Hunan, Oriental, Jiangsu, Beijing, Shandong, etc.), provincial terrestrial channels, high-quality Internet video media (such as iQIYI, Inc., Tencent, Youku, mango TV, Sohu.com Ltd video, etc.), and social media (such as Weibo Corp, Wechat, Douyin, Momo Inc, etc.).
(2) on the content side, the company is determined to raise no more than 610 million yuan, and plans to invest in TV variety (505 million yuan) and online variety (105 million yuan) to strengthen the ability to produce long-term video content and enhance the value of the company's content marketing advertising. Among them, TV variety programs include "Top Gun 2", "Square Dance to realize Dreams", "upward Bar Poetry 2", "lifestyle Fashion" and "Fashion partner", while online variety programs include "Campus Legend (event Book)" and "awesome world Kids". The company's 2017 content marketing revenue of about 300 million yuan, variety projects first attract investment and then production, can effectively deal with investment risks. Under the profound accumulation of video advertising and content marketing, the company will focus on developing content creative marketing in the future, and is expected to have more in-depth exploration in content and marketing technology.
(3) client, the company has a rich customer base, which mainly includes three categories. First, long-term head brand owners include Vipshop Holdings Limited, Yangyuan Beverage, China Mengniu Dairy, Junlebao, Midea, Jiuyang Electric Appliances, Yadi Group, Yabao Pharmaceutical, etc., all of which have maintained stable customers for more than 5 years; second, unicorns, industry leaders and other new high-quality customers include Trip.com, Meituan, Pinduoduo, Uxin Ltd., VIPKid, Kuaishou Technology, Tencent Interactive Entertainment, head 1-to-1, etc. Third, through the synergy of mergers and acquisitions to obtain many high-quality customers, such as fun services, including Jijia, CHANEL, BURBERRY, Land Rover, MUJI, Kindle, Starbucks Corp, Intel and other high-quality brand owners.
Investment suggestion: the company continues to layout collaborative business, and has obvious advantages in the vertical field of Internet video and mobile. Zhuhai Shitong and Shanghai Zhiqu both have core resources and their business is in a period of rapid expansion. We are optimistic about the company's natural growth in 2018. Assuming that the remaining 40% equity interest in Shanghai Zhiqu is consolidated in June 2018, we expect the company to be 150 million yuan, 190 million yuan and 228 million yuan in 2018-2020, corresponding to 150 million yuan, 0.70 yuan and 0.84 yuan in EPS0.56. With reference to similar comparable companies, give a valuation of 25 times in 2018, corresponding to the target price of 14 yuan, and maintain the "buy-A" rating.
Risk tips: deteriorating competition in the digital marketing industry, Zhuhai Shitong and Shanghai fun business expansion is not as fast as expected, content production is unstable, cooperation with short video media is not as expected.
