Gehua Cable (600037): Less than expected performance

The company’s traditional cable TV business has reduced revenue but increased costs, which has resulted in lower-than-expected results growth.

We remain optimistic about the potential for the company to benefit from the policy dividend to achieve transformation and development.

However, expectations have risen to our target price, and we downgrade the company rating to neutral.

The reasons are as follows: Revenue has remained stable overall, and traditional cable TV services are still under pressure, but broadband and value-added services have grown.

The company achieved operating income of 27 in 2018.

25 trillion, with an increase of 1.

00%; net profit attributable to parent company 6.

94 ppm, a decrease of 8 per year.

81%.

In terms of the split, due to the impact of the loss of subscribers and the decline in payment rates on the cable TV industry as a whole, the company’s basic cable TV viewing and maintenance income has decreased.

8% to 10.西安耍耍网

500 million, and it has been increasing in the past three years.

However, the broadband business achieved recovery growth, with revenue reaching 6.

2.4 billion, an increase of 8.

59%.

Even more dazzling are value-added services.

The company’s HD interactive users / estimated program on demand / ARPU increased by 25 respectively.

79% / 12.

36% / 33.

33%, driving value-added business income to 3.

02 trillion, the proportion of revenue rose to 11.

08%.

The operating profit margin slightly expanded the combined investment income to a negative increase in net purity.

Due to the pressure of labor cost growth, the company’s operating costs increased slightly.

8%.

At the same time, management and R & D costs have increased each year.

39% and 10.

20%.

Affected by this, the company’s operating profit margin decreased 2.

7ppt.

In addition, due to the reduction in the disposal of financial assets, the company’s investment income also decreased by 0 compared with the previous year.

700 million.

The implementation of the smart broadcasting strategy is of far-reaching significance, but it is not enough to support the company’s performance growth in the short term.

A series of policy trends since the second half of last year reflected the positive reform signals of the broadcasting and television system and the determination of senior management to promote smart broadcasting and television.

Entering 2019, the company is expected to expand its investment in ultra-high-definition business on a technical scale, comprehensively promote the replacement and replacement of 4K ultra-high-definition set-top boxes; accelerate the intelligent transformation of the business, especially to build and improve for individuals, enterprises, governments, and different user groupsSmart products to expand revenue sources.

In the face of the Internet industry’s impact and operator competition, technological upgrading and business transformation will be the essence of the company’s long-term development, but it will be a gradual process. We expect that short-term contributions to the company’s profits will be limited.

What makes us different from the market?

Policy dividends provide the possibility for the development of radio and television transformation, but it will take time for the transformation to succeed. Potential catalysts: (upstream) policy support continues to increase, the company’s business transformation and upgrading speed exceeds expectations; (downward) found that users continue to churn, and the development of smart radio and television is slow.

Earnings forecasts and estimates Based on the above analysis, we lower our 2019 earnings forecast by 13% to 7.

200 million, and posted a net profit of 20207.

500 million.

The current sustainable corresponding to 23x / 22x of 2019/2020 market surplus, we maintain our target price of 11.

2 yuan unchanged, corresponding to 22 times / 21 times the 2019/2020 market surplus.

Risk policies were weaker than expected, and competition in video and broadband services intensified.