1H23 performed better than we expected

The company announced 1H23 results: 1H23 revenue of 3,548 million yuan, up 16.7% year on year; net profit of 516 million yuan, up 72.7% year on year; net profit after deducting non-return net profit of 314 million yuan, up 142.5% year on year. 2Q23 Revenue was 1.84 billion yuan, up 37.1% year on year; net profit of 262 million yuan, up 123.8% year on year; net profit after deducting non-return net profit of 140 million yuan, up sharply year on year. Performance exceeded our expectations, mainly because investment income, asset disposal income, and other income were higher than expected.

Development trends

1H23 The cultural tourism business is recovering relatively quickly, and the radio and television network business is relatively stable. Cultural consumption business:

In 1H23, the company's cultural consumption business achieved revenue of 1.1 billion yuan, an increase of 58.8% over the previous year. Among them, the cultural tourism business achieved revenue of 603 million yuan, an increase of 281% over the previous year. According to data from the Ministry of Culture, Tourism and China Institute of Tourism, the total number of domestic tourists in the first half of 2023 was 2,384 million, recovering to 77% of the same period in 2019; domestic tourism revenue was 2.30 trillion yuan, recovering to 83% in the same period in 2019. The company has deepened its digital capacity building, linked to offline experiences, and the urban landmark cultural tourism business has clearly recovered; reservations for the main venue of the 1H23 Mercedes-Benz Cultural Center are very popular, and the number of events completed in the first half of the year is basically close to the same period in 2019. Smart radio and television business: The radio and television business was relatively stable. Revenue from the integrated media business and the smart radio and television 5G business increased by 2.4% and 6%, respectively. The company's radio and television network still covers a wide range of users. 1H23's BestV+ streaming video platform services cover 10 million monthly BaishTV users, 61 million IPTV business users, 103 million OTT business users, 56 million active pay TV users, and 21 million interactive on-demand users, respectively. We believe that the company's radio and television media integration development tone may continue to be maintained, but the ability of the streaming media business to integrate core online resources such as products, content, channels, and shopping still needs to be further improved, and we will focus on the progress of transformation.

2Q23 Gross margin continued to improve, and operating expenses were relatively stable. 2Q23 The company's gross margin was 33.4%, with year-on-year and month-on-month increases of 6.7ppt and 0.1ppt respectively; the sales expense ratio, management expense ratio, and R&D expense ratio were 9.0%/12.0%/3.3%, respectively, down 1.2ppt/2.1pp/1.0ppt year on year, and the cost reduction and efficiency strategy continued to be implemented. 2Q23 The Company also achieved investment income, asset disposal income and other income of $5,314/4519.7 million yuan, which contributed to profits for the quarter.

Focus on the progress of broadcast+5G and the company's ability to integrate resources. We believe that the construction and operation of 5G in radio and television across the country may continue to advance. We believe that the company may be actively integrated into the digital transformation of Shanghai's city, and that it is rich in online and offline resources. It is recommended to pay attention to the company's integrated development potential of radio, television, and 5G.

Profit forecasting and valuation

Considering asset disposal proceeds and other earnings were higher than expected, we raised our 2023 and 2024 net profit by 5.6%/5.4% to $962/979 million. When the current price corresponds to 28.5/28 times 2023/2024 P/E. Maintaining a neutral rating, due to an increase in profit forecasts, we raised our target price by 5.5% to 7.04 yuan, corresponding to 25/25 times P/E 2023/2024, with room for decline of 12.4%.

risks

Competition has abated, and the promotion of new business has exceeded expectations.