Company dynamic events

Xinghui Entertainment announced its semi-annual report in 2019, with operating income of 1.123 billion yuan in the first half of the year, down 31.50% from the same period last year; net profit of 126 million yuan, down 10.76% from the same period last year; and net profit of 101 million yuan after deduction, a decrease of 12.15% over the same period last year.

Comments on matters

Divestiture of the interesting pill network-the fluctuation of players' transfer revenue led to a decline in revenue and profits in the first half of the year, mainly due to the divestiture of the interesting pill network in June last year, excluding its impact, the company's revenue decreased by 10.96% compared with the same period last year. Player transfer income has a great impact on the company's performance, but the annual revenue scale and revenue recognition of the business are not fixed. In the same period last year, the company made a profit of more than 100 million yuan by selling players, but there was no similar income in the first half of this year, resulting in a year-on-year decline in profits in the first half of this year. But in the second half of the year, the company has confirmed that it will contribute about 190 million yuan in net profit through the sale of players such as Borja Iglesias and Mario Elmoso through its clubs.

Game business: the decline in promotion costs released profits, overseas business continued to grow in the first half of the year, the company's game business revenue of 377 million yuan, accounting for 33.56% of the total revenue. After stripping off the low-margin interesting pill network, the revenue scale of the company's game business in China decreased significantly, but the company released profits by reducing promotion expenses, and the overall net profit of the company's game business in the first half of the year was 84 million yuan, an increase of 24.14% over the same period last year. The company continues to expand in overseas markets, with revenue of 126 million yuan in the first half of the year, an increase of 33.28% over the same period last year. At present, the company's game business accounts for the highest proportion of the product is "Bawangzhiye", the game is represented by Tencent in China, the overall operation is stable; since 2018, the game has landed in Japan and South Korea, Southeast Asia, Hong Kong, Macao, Taiwan and other countries and regions, especially in Japan and South Korea. At present, the total flow of the game at home and abroad is maintained at about 100 million yuan. The company plans to launch more games in the second half of the year, including "return to Civilization", "Maiden's Throne" and other games are already in the testing stage, and the games the company is studying also include the mobile version of the domestic classic stand-alone SRPG series game "Fantasy World record" and other works.

Sports business: benefit from the Wu Lei effect and the renewal of the broadcasting agreement, the commercial effect of the club gradually appeared in the first half of the year, the company's Spaniard club achieved an income of 462 million yuan, accounting for 41.18% of the total revenue. In addition to the transfer income of players, the club's television broadcasting, sponsorship, advertising, derivatives and other income have achieved a positive growth of more than 30%. In the future, the club's business income is expected to achieve sustained growth. Television is the main source of club income, accounting for about 60% of the club's income in the first half of the year. The newly arrived 2019 Universe 2020 season coincides with the replacement period of La Liga television broadcasting contracts, which are sold collectively by La Liga League. previously, the league completed the sale of overseas broadcasting rights of La Liga for the next five seasons at a price of 4.485 billion euros, and the average annual income increased by 34% compared with the 2017 18 season. The league has also sold some domestic broadcasting rights in Spain for 3.421 billion euros over the next three seasons, more than 15 per cent of the total domestic broadcasting rights in Spain in the past three seasons. All the clubs in La Liga will benefit from the increase in the amount of television broadcast, and the score of the team is related to the club's historical record in the past few years. Last season, the Spaniard club successfully reached the Europa League with the seventh result in the league. Achieved a historic breakthrough. And Wu Lei joined the Spaniard club to greatly enhance the influence of the club. Recently, the club has successively signed strategic cooperation or sponsorship agreements with China Mobile Limited Migu, Le Sports and iFLYTEK, and the revenue from club sponsorship, advertising and derivatives is expected to continue to rise in the future. In order to prepare for the 2022 World Cup, Chinese football adopts the strategy of player domestication supplemented by core players studying abroad in order to improve the competitive level in a short time, while in order to further improve the comprehensive level of football in the future, it needs to rely on the gradual improvement of the youth training system. This series of practices can be said to refer to the successful experience of Japan, while the Spaniards have a deep foundation in youth training and are famous for their strength in Europe. So far, the team has set up football schools in Hunan, Shanghai, Shandong and other places, with the aim of discovering and training excellent Chinese football talents. In the future, the club is expected to fully share the improvement of commercial value accompanied by the great development of China's football industry.

Profit forecast and valuation

The company's game and toy business globalization strategic layout is perfect, the performance is sound; the club commercial value is enhanced, the performance flexibility is good. It is estimated that the return net profit of the company from 2019 to 2021 is 420 million yuan, 515 million yuan and 604 million yuan, corresponding to the EPS per share is 0.34,0.41 and 0.49 yuan respectively, and the PE is 15.01,12.25,10.44 times. Give a rating of "overweight".

Risk hint

Policy risk; club commercialization is not as expected; club performance decline; club management policy change; new game launch time or flow is not as expected; exchange rate fluctuation risk; increased trade barriers