Incident: Focus Media (002027.SZ) released its 2023 Annual Report and 2024 First Quarter Results Report on April 29, 2024. In '23, the company achieved annual revenue of 11.904 billion yuan, an increase of 26.30%; operating costs of 6.980 billion yuan, an increase of 10.40%; net profit to mother of 4.827 billion yuan, an increase of 73.02%; and basic earnings per share of 0.33 yuan, an increase of 72.98% year on year. In the first quarter of 2024, the company achieved operating income of 2,730 billion yuan, up 6.02% year on year; operating costs of 1,698 billion yuan, up 4.20% year on year; realized net profit to mother of 1,040 billion yuan, up 10.50% year on year; and basic earnings per share of 0.07 yuan, up 10.43% year on year.
In 2023, FenZhong Media's gross margin was 65.48%, sales expenses ratio was 18.51%, management expenses ratio was 3.72%, R&D expenses ratio was 0.52%, and net profit margin to mother was 40.55%. The company's 23Q4-24Q1 gross margin was 65.41%/61.69%, sales expense ratios were 19.06%/17.61%, management expense ratios were 4.05%/4.06%, R&D expenses were 0.49%/0.61%, respectively, and net profit margin to mother was 37.94%/38.10%, respectively.
By business, the revenue of FanZhong Media's Building Media/Cinema Media in 2023 was 11.119 billion yuan/769 million yuan respectively, up 25.28%/43.10% year-on-year. Building media operating costs were $3,796 billion, up 3.54% year on year; gross profit was $7.323 billion, up 40.57% year on year; gross margin was 65.86%.
Comment:
The 23 year performance was steady, moderate and positive, and the 24Q1 net profit performance after deducting non-return to mother was excellent. In '23, we achieved revenue of 19.9 billion yuan, +26.3% year over year; achieved net profit of 4.827 billion yuan, +73.02% year over year, within the performance forecast range; gross margin remained stable at over 60%, sales, management, and R&D expenses were effectively controlled, and profitability was excellent. In Q1 '24, revenue was 2.73 billion yuan, +6.02% year over year; net profit to mother was 1.04 billion yuan, +10.5% year over year, net profit after deducting non-return to mother was 945 million yuan, +18.2% year over year. Net profit to mother was affected by reduced interest income and reduced government subsidies. Among them, interest income decreased 16 million yuan year on year, down 25.7% year on year. Other income decreased by 84.13 million yuan year on year, down 45% year on year. Judging from the business segmentation performance, the media resources in the main business life circle are large, covering more than 280 domestic cities and 95 major foreign cities, and the penetration rate is high.
The number of building media increased by 325,000 compared to '22, and the number of cinema screen advertising media collaborations increased 151 compared to '22. The company optimizes the differentiated layout of products, enhances digital and intelligent marketing capabilities, and has achieved online promotion in the cloud, online monitoring of broadcast status, and accurate delivery; at the same time, it is actively exploring major marketing models, combining AI to empower more advertisers.
The high dividend ratio continues to boost investor confidence. The company pays cash of 3.30 yuan (tax included) for every 10 shares to all shareholders. There is no dividend share, and no capital increase is implemented from the capital reserve. A total of 4.766 billion yuan was distributed, accounting for 98.7% of the net profit attributable to mother for the period. The dividend ratio is high. The company attaches great importance to shareholders' returns. At the same time, it is stipulated that if the company's development stage is mature and there are no major capital expenditure arrangements, cash dividends should account for at least 80% of the current profit distribution. Strong cash flow and stable cash dividend policies continue to boost investor confidence. Based on the closing price of 23.12.31, which corresponds to a market value of 91.275 billion yuan, the corresponding dividend rate is 5.2%.
The increase in advertising market spending increased in January-January '24. Elevator LCD and elevator poster channels performed well, and the advantage of mass media channels was stable. According to data from CTR Media Intelligence, the domestic advertising market rose 6.0% year on year in '23 and 7.5% year on year in January-January '24, and demand in the advertising market picked up. The company's customer structure is diverse, covering a wide range of industries such as consumer goods, the Internet, real estate and home furnishings. Among them, consumer goods/Internet customers account for more than 52%/11% of revenue, respectively; there are various outdoor advertising scenarios, including high-speed rail, airports, elevators, cinemas, frames, and large outdoor screens. According to CTR Media Intelligence, advertising market spending increased 12.3% year-on-year in February, an increase of 9 percentage points over the January increase. Among them, monthly advertisements for TV, radio, subway, elevator LCD, and elevator posters all showed year-on-year growth. In particular, elevator LCDs and elevator posters all increased by more than 25%, and consumer goods customers were selling steadily. We anticipate that in the second quarter of '24, customer investment budgets in the cultural tourism, Internet and other industries will be raised, and that the advantages of mass channels are expected to be certified.
Investment advice: We expect the revenue of FanZhong Media in 2024-2026 to be 138.03, 154.20, and 16.948 billion yuan, respectively, +16.948 billion yuan, +16.948 billion yuan; realized net profit to mother will be 5,574/62.23/ 6.929 billion yuan, respectively, +15.5%, 11.6%, and 11.4% year-on-year. As of May 8, 2024, the corresponding PE was 16.84/15.09/13.55, respectively, maintaining a “buy” rating.
Risk factors: Offline consumption recovery falls short of expectations, advertisers' spending budgets fall short of expectations