Incident: On April 29, Focus Media (002027.SZ) published the 2023 Annual Report and 2024 Quarterly Report. 1) In 2023, we achieved revenue of 11.904 billion yuan, yoy +26.30%; net profit to mother of 4.827 billion yuan, yoy +73.02%; net profit after deduction of 4.374 billion yuan, yoy +82.68%. In line with the performance forecast.
2) 24Q1 achieved revenue of 2.73 billion yuan, yoy +6.02%; net profit to mother of 1,040 million yuan, yoy +10.50%; net profit after deduction of 945 million yuan, yoy +18.17%.
The consumer goods and Internet industry still contributes the main revenue sources: 1) By industry, customers in the consumer goods industry were the largest revenue source, accounting for 56.23% in 2023, yoy+1.04pct; followed by the Internet at 11.75%, which was stable year on year. 2) By product: 2023 building business of 11.119 billion yuan (yoy +25.28%); cinema business of 769 million yuan (yoy +43.10%).
Margin optimization, profit release from operating leverage: 1) 2023: As downstream advertisers' demand continues to recover, the company's operating leverage brought profit release. The gross margin increased significantly by 5.77pct to 65.48%. The management fee ratio of -2.74pct was mainly due to the large collective compensation and year-end bonus in the previous year, while there were few related expenses in 2023. Investment income decreased by $144 million year over year; overall repayment conditions were stable; total asset impairment and credit impairment losses decreased by $380 million year over year; other income decreased by $259 million year over year. Net profit margin to mother is 40.55%, yoy+10.95pct. 2) 24Q1 gross profit margin of 61.69%, year-on-year stability; expenses for the period were relatively stable; net profit margin to mother 38.1%, yoy+1.5pct.
Channel points continued to increase slightly: 1) Elevator TV media: 1,116 million units as of 24Q1, 105.7 and 868,000 units in 2023 and 2022, respectively. 2) Elevator poster media: As of 24Q1, there were 3.078 million units, and in 2023 and 2022, there were 3015 and 2.69 million units, respectively.
High dividend ratio to give back to shareholders: The 2023 profit distribution plan proposes to pay 0.33 yuan (tax included) per share. The dividend rate corresponding to the April 30 stock price is 5.08%, and the profit dividend ratio is 98.7%.
Investment advice: We expect the company's profit to be 5.471 billion yuan, 5.930 billion yuan, and 6.331 billion yuan respectively in 2024-2026, corresponding to the closing price PE on April 30, 17 times, 16 times, and 15 times, respectively.
We believe that: 1) Community ladders are scarce; mass offline traffic is indispensable to reach value, and channel value is prominent; 2) the company's position barriers are deep and the competitive landscape of the industry is stable; 3) the company's high dividend ratio rewards shareholders, showing long-term value. Maintain a “Recommended” rating.
Risk warning: 1) The recovery of the advertising industry fell short of expectations; 2) bad debt losses due to poor control of the company's accounts receivable; 3) competition in the industry intensified; 4) the form of community media changed, and community media dominated by ladder media were replaced by other media.