I. introduction of Dingzeng Project

Listed companies plan to issue no more than 69.2819 million shares to no more than 35 specific targets. The funds raised are proposed to use 356 million for the brand new retail network operation construction project, 186 million for the smart marketing cloud platform construction project, 97.6031 million yuan for the innovation technology research center project, and the remaining 270 million for supplementary liquidity. The sales limit is 6 months. The company was examined and approved by the Development and Review Committee on September 16, 2020.

II. Fund-raising projects

1. Brand new retail network operation construction project: the company intends to invest money to carry out brand agent operation business, build new channels and new retail ecosystem in the new marketing era, and provide customers with more efficient marketing solutions. Driven by data technology, content and channel resources, achieve double growth of brand communication and product sales, and further consolidate and enhance the company's service advantages and industry status.

2. Smart marketing cloud platform construction project: this project is designed to meet the customized new marketing needs of different enterprise customers. To integrate the company's existing big data analysis platform: covering the whole network real-time data graph analysis platform GRAPHy, set insight (DCD), budget (HYMIS), decision (DOI), implementation (PBS), analysis (ADA), monitoring (SOM) An integrated intelligent marketing platform that is iteratively upgraded and integrated with the new system. Smart marketing cloud platform can directly serve customers, while providing technical and big data support for the company's business, improving service quality and reducing labor costs.

3. Innovation Technology Research Center Project: this project plans to build an Innovation Technology Research Center, which will be used for technological R & D and upgrading, new technology innovation research and other work related to the company's main business, which will help to enhance the company's technological R & D strength and sustainable development ability. The project mainly includes three R & D projects, namely blockchain Magellan platform and Mai APP, big data application and RCS terminal application R & D in 5G scene.

4. Supplementary liquidity: according to the mid-2020 report, the company's consolidated asset-liability ratio is 72.65%, the company's current liabilities are 4.231 billion yuan, and short-term loans are 1.136 billion. The company has a certain degree of liquidity pressure in the short term. Part of the funds raised by this A-share issue will be used to supplement the company's liquidity, which will help to improve the company's debt structure, reduce the company's asset-liability ratio, and reduce interest expenses, thus significantly enhancing the ability to resist risks.

III. Company profile

Huayang Lianzhong is the leader of domestic digital marketing, based on global marketing thinking layout technology and platform. Founded in 1994, the company has been transformed into an Internet full-case marketing service provider since 2002, and was listed on the Shanghai Stock Exchange in 2017. Huayang Lianzhong's current business form is mainly agency business (including brand advertising and effect advertising), supplemented by creative (content marketing / MCN/ online celebrity marketing, etc.) and technology-based business (setting up two major research institutions to explore the realization of data assets). Under the background that the discourse power of marketing agents is constantly squeezed by downstream channels, the company has established the idea of transformation in 2020: based on global marketing thinking in-depth business chain, short-term expansion of service scope (new marketing model) and deepening service depth (e-commerce operation) to improve profit margin, long-term agreement with 5G layout media, platforms and technologies to form core barriers.

The company's existing business is divided into three parts: Internet advertising services, buyout sales agents and film and television programs. According to the 2020 report, the business accounts for 93.84%, 5.54% and 0.62%, respectively. 1. Internet advertising services include advertising agents and advertising planning and production. Advertising agency means to determine the docking, playback requirements, price and testing tracking of advertisements with the media by discussing advertising plans with customers. Advertising planning and production refers to the formulation of marketing strategies, advertising content, delivery plans for customers and the use of technical means to test, analyze, adjust and optimize the plan. 2. Buyout sales agents point to customers to purchase goods, sell goods directly or indirectly to specific online sales platforms, and help customers or online sales platforms to develop diversion and marketing planning services. The revenue of buyout agent sales has declined in the past two years, which is due to manufacturers and online sales platforms to reduce the price of specific goods purchased by the company and the company to reduce the scale of procurement. 3. Film and television program business refers to the investment in the production of film and television works and the promotion of film and television program resources. The film and television business is still under exploration, the gross profit is unstable and unprofitable in some years, but it has little impact on the scale of the company's gross profit.

In the past two years, the company's operating income and return net profit have maintained steady growth. From 2017 to 2019, the company's operating income CAGR was 13%; the return net profit CAGR was 23%. According to the 2020 China report, 2020H1 achieved revenue of 4.784 billion, down 8.87 per cent from the same period last year, and realized net profit of 66 million, up 20.06 per cent from the same period last year. The gross profit margin of the company is 11.34%, and the net profit margin is 1.29%. The overall gross profit margin and net profit margin of the company have been relatively stable since they were listed in 2017.

The equity of the company is more concentrated. According to the 2020 China report, Su Tong, the controller, directly holds 21.34% of the shares and 8.46% indirectly through the shareholding platform (Shanghai Huayang Lianzhong Enterprise Management Co., Ltd.).

Su and her mother, Jiang Xiangrui, are actors, holding 12.69% of the shares. The actual controller and the concerted actor hold a total of 42.5% of the shares of the company, and the equity is more concentrated.

IV. Core logic

IResearch expects the size of Internet advertising to reach 1.2 trillion in 2022, of which e-commerce advertising and short video advertising will become the largest and fastest-growing segments of mobile Internet advertising, respectively. In 2019, the size of China's online advertising industry reached 646.43 billion yuan, an increase of 22.7 percent over the same period last year, of which the scale of mobile online advertising was 541.52 billion yuan, an increase of 47.8 percent over the same period last year. IResearch expects Internet advertising and mobile Internet advertising to reach 1.2 trillion and 1.06 trillion in 2022, with a compound growth rate of 23.0% and 24.95% in 2019-2022. Among them, e-commerce advertising will become the segment with the highest proportion of mobile advertising revenue in 2022, accounting for 38.1%, while short video advertising will become the fastest-growing segment, with revenue rising from 14.8% in 2019 to 25.2% in 2022.

With the continuous rise of new media, the degree of competition of downstream media is expected to intensify, and mid-stream advertising service providers are expected to increase the discourse power of the industrial chain. Advertising media channel is the king, mainly with television, outdoor and BATJ Internet channels. The channel leader has a strong say in the industrial chain because of its monopoly of directly connecting customers. However, with the emergence of multiple categories, such as content marketing, short video marketing, social marketing, IP marketing and so on, the channel end is gradually decentralized. New media include Douyin, Kuaishou Technology, communication operators and so on.

In the pattern of full competition among advertising service providers, companies with full-link brand owners are expected to benefit. Advertising service providers are a fully competitive industry. From the development process of service providers, the services they provide expand from basic services (operational services) to core services (IT services, marketing services, warehousing and logistics services) and value-added services (data analysis services, etc.). Head service providers have formed full-link service capabilities to obtain long-term and stable cooperation among brand owners. As a leading Internet marketing enterprise, the company has already developed a three-dimensional and multi-dimensional marketing service matrix, and its global marketing ability is the core guarantee for the company to lead the industry and provide quality marketing services. The company has high-quality and stable customer resources (including more than 100 large and medium-sized brands), and most of the customers are direct customers (accounting for about 80%, 90%). The industry structure is mainly divided into three categories: automobile, fast consumer and Internet, accounting for about 30% of the budget respectively.

V. performance forecast

We assume that: 1. On the one hand, advertising service providers' gross profit margin of buying traditional media is constantly squeezed by downstream channels, on the other hand, the company continues to develop new marketing business, such as the gross profit margin of MCN20%-50% is much higher than the gross margin of media purchase, so we expect the company's gross profit margin to be stable at about 11% in the next three years. 2. According to the company's equity incentive scheme, the condition for unlocking in 2020 is to deduct 350 million of the non-return net profit. We estimate that after the fixed increase, the diluted EPS of the company 2020, 2021 and 2022 will be 1.18,1.42 and 1.68 yuan per share respectively. According to the forecast PE of comparable companies Blue cursor, Leo shares, Shengguang Group, Simei Media and Xuanya International in 2021, we give the industry an average of 25 times PE, corresponding to a reasonable share price of 35.50 yuan in 2021.

VI. Suggestions for participation

Participation is not recommended

1. The channel is the king in the marketing industry chain, and a new steady-state pattern is formed after channel decentralization, which will still squeeze the profits of the mid-stream marketing service providers. In the marketing industry chain, the upstream advertisers and mid-stream marketing service providers are extremely scattered, while the downstream channels are relatively concentrated in the face of customers, thus forming a pattern in which the channel is king. In recent years, with the increase of the market share of downstream leading Internet media, the gross profit margins of mainstream digital marketing companies have shown greater downward pressure. With the rise of new media such as Douyin and Kuaishou Technology, Internet giants such as BATJ have been squeezed to give part of their profits to mid-stream marketing service providers. However, after the new pattern is re-confirmed, it will still squeeze the profits of mid-stream marketing service providers.

2. The company announced the equity incentive plan in 2018, and its performance in 2018 and 2019 did not reach the target of deregulation.

The company implemented a restricted stock incentive scheme in 2018, granting a total of 4.3591 million shares to its 125 employees at a price of 14.98 yuan per share, with 1.1097 million shares reserved. The sales restriction period is 12 months, 24 months and 36 months respectively from the date of listing. The condition for lifting the restriction is that the company's annual net profit in 2018-19-20 reached 1.8 per cent 2.5 / 350 million respectively, a year-on-year growth rate of 50 per cent, 40 per cent and 38 per cent. The net profit in 2018 and 2019 fell short of the promise and was repurchased and written off.

3. The asset-liability ratio of the company is high. The asset-liability ratio of the company's 2017/2018/2019/2020H1 is as high as 74.39%, 78.38%, 72.15% and 72.65%, and there is a large liquidity risk.

VII. Investment risk

Macro-economic decline risk, competition aggravating risk, e-commerce agent operation business promotion is not as expected risk