Event: the company issued an announcement of pre-increase in performance, which is expected to achieve a net profit of RMB 3.1-350 million in the first three quarters of 2019, an increase of 45% RMB65% over the same period last year, of which Q3 achieved a net profit of RMB 200-210 million in a single quarter, an increase of 180% over the same period last year. The Spaniard club has completed the change of head coach position, and Pablo Machin has taken over the position of head coach.
The rapid development of sports business is the main reason for the change of performance. The company's performance is in line with our expectations, mainly due to the substantial increase in sports business revenue. During the reporting period, the company contributed at least 190 million yuan in net profit from the sale of players such as Borja Iglesias and Mario Elmoso, which was mainly recognized in Q3. In addition, the club broadcasting income and sponsorship income have increased greatly, which also provides a solid foundation for the rapid development of sports business.
The coach is expected to land, and the league record is expected to pick up. The company's Spaniard club successfully completed the change of coach, former Sevilla coach Pablo Machin became the new head coach. Pablo Marchin began his first-team coaching career in 2011 and ranked 24th in the "Top 50 coaches of World Football in 2018". He has coached at Numancia, Horona and Seville, among which he led Herona to La Liga for the first time and promoted his horse to 10th place in the league, and Seville ranked sixth in 1819.
The change of coach of the club is mainly due to poor league performance. The main reason for the poor performance of the league is "multi-front operations" + "tactical mismatch". The change of head coach is expected to solve the problem of tactical matching, and the club's league record is expected to stabilize and pick up.
We reiterate our views on the core concerns of the market.
The profitability of the club: unlike most clubs, the Spaniard club implements a joint-stock, profit-oriented operation model. After years of painstaking polishing, the club's profitability has gradually emerged, achieving a net profit of 100 million yuan in 2018 and is expected to show a substantial increase in 2019.
The sustainability of profitability: the club's "3: 1" business model is very mature. Among them, "3" (respectively, broadcast income, sponsorship income, match day income) are in a stable upward range; "1" is the transfer income of players, the total value of club players has reached 150 million euros, and the club has become one of the top 40 in Europe. The value of the platform has increased significantly, which is expected to further increase the transfer income of players.
The sustainability of the "player trading model": the market fears that "selling core players" will damage the value of the club. We believe that the value of the club lies in the platform, not the players, and the value of the players depends on the platform.
The new players such as Matthias Vargas and Fernando Calero are in good condition to fill the vacancy of Borja Iglesias and Mario Elmoso. A good foundation of youth training and scouting system is an important cornerstone to maintain the value of the club platform, which is difficult to build and has high stability once formed.
Transfer market strategy: we believe that the club's idea of bringing in aid is relatively clear. This season, seven players have been introduced outside the club and four players have been raised internally. In terms of position, there are 2 strikers, 3 midfielders, 5 guards and 1 goalkeeper, effectively improving the depth of the lineup; in terms of age, a total of 9 players are sold, with an average age of 27.9 years, of which Sergio Garcia and other players are at the end of their careers. The average age of the transferred players is 24.3 years old, and the club has completed the succession of the new and the old.
League record problem: we think there are two main reasons for the poor performance of the league this season: "multi-front operations" + "tactical mismatch". Since the start of the game, the club has played 16 games, while the vast majority of teams in the league have played only 8 games. Multi-line operations have posed new challenges to the club's preparation and players' physical fitness. The former coach prefers 4-4-2 formation, the matching degree of the existing staffing is not high, and only a few games with other formation have achieved good results, which proves that as long as the strategy is proper, the competitive strength of the club is quite good.
Profit forecast and investment advice. Q3 performance high growth superimposed change event is expected to constitute a strong short-term catalysis, taking into account the long-term operating value of club assets, we maintain the target price of 7.72 yuan per share, maintain the "buy" rating.
Risk hints: the risk of macroeconomic recession, the risk of industrial policy change, the risk of club operation or less than expected, the risk of uncertainty of competitive sports, the risk of game business development or not as expected.