FY2018 & 1Q19 performance meets expectations
Huayi Brothers announced its 2018 results: operating income was 3.891 billion yuan, down 1.40% from the same period last year; net profit attributed to the parent company was-1.093 billion yuan, down 23.2% from the same period last year. At the same time, the company announced 1Q19 results: operating income was 592 million yuan, down 58% from the same period last year, and net profit was-93.93 million yuan, down 136% from the same period last year. The company's performance is basically in line with the previous forecast.
Trend of development
Suffering from the impairment of assets, the company suffered its first annual loss. In 2018, the company's film and television entertainment business revenue increased by 8.39% compared with the same period last year, and its gross profit margin increased by 12.74%. Among them, the interseason film "Fanghua" and "ex-3" grossed 1.42 billion yuan and 1.94 billion yuan respectively, with a particularly outstanding performance, while "the four Heavenly Kings of Di Renjie" and "Yunnan insect Valley" were lower than expected. However, affected by the market environment and the progress of collection, the revenue from brand licensing and live entertainment, another major business of the company, fell 42.15% year-on-year, and the gross profit margin also decreased by 65.39% year-on-year. In addition, the company recorded an asset impairment loss of 1.382 billion yuan, an increase of 1.102 billion yuan over the same period last year, resulting in the company's first performance loss since listing.
1Q19 is still in the period of business optimization and adjustment. The company's 1Q19 revenue fell 58%, mainly due to the cyclical impact of business optimization and upgrading and film and television project production. In terms of movies, the company was absent from the Spring Festival, "can I return my brother?" It grossed only 1.75 million at the box office, compared with the intertemporal masterpiece "Fang Hua" and "ex 3" in the same period last year. In terms of TV dramas, "long time No see" was broadcast in the same period last year and recorded considerable revenue, and this year's key projects are still in production. Although 1Q19's operating income fell sharply, operating costs fell by only 16% compared with the same period last year, resulting in a 42.3pct decline in gross profit margin to 15.6%, which is also the main reason for Q1's loss.
Look forward to rebuilding the main business advantage. The chairman of the company said publicly that in 2019, the company will focus on rebuilding its main business advantages, focusing on "movies + real scenes". The follow-up list in 2019 includes nine films, including Mermaid 2 and 800, and more than 30 TV dramas are expected to participate in or release in 2019, including July and Anson and the Joy Hunter. The quantity and quality of films are better than those of last year. In addition, the company expects 2-3 live entertainment projects to open in 2019.
Profit forecast
We keep our earnings forecast for 2020 unchanged in 2019.
Valuation and suggestion
The company's current share price corresponds to 18.6 times the price of 18.6 times the price of 18Universe 20.4 in 1919. Considering that the media index has risen 26% since the beginning of the year, we have raised the target price by 26% to 5.4 yuan, corresponding to the 18.4 times Pmax E of 20.2 picks in 180.19, to reflect the impact of the upward shift in the industry's average valuation center. The target price is 1% lower than the current price. Maintain a neutral rating.
Risk
Tighter policy regulation, poor performance at the box office or TV series, lower-than-expected performance of investment targets, impairment of goodwill, liquidity difficulties and the risk of debt default.