Focus Media :2017profit beat,promising outlook in 2018,raising PT to RMB18.2

类别:公司研究 机构:德意志银行 研究员:Tallan Zhou,Karen Tang 日期:2018-03-09

Robust growth in 2017, bottom-line beat consensus and our number - Buy

    We reiterate Buy on Focus Media (FM) and raise our PT by 13.7% to RMB18.2.

    FM’s 2017 bottom-line beat our number by 10% and consensus by 3%, basedon its preliminary results. We have seen more traditional consumer andeducation companies investing more via FM’s ad channels. In addition, FM hasoperating leverage as its cost of rent for each screen/post frame is fixed.

    2018 outlook: we expect robust growth to continue on further penetration

    We forecast 23% top-line and 25% bottom-line growth in 2018. We havenoticed internet companies focusing more on lower-tier cities as theypenetrate China. As a result, FM’s management said that its internet clients arerequesting screen/post frame penetration in lower-tier cities. We expect postframes to increase to 1.6m and LCD screens to increase to 300,000, up c.20%yoy. We raise our 2018/2019 earnings forecasts by 11% and 12% to reflect this.

    Internet, FMCG, education and Baijiu seeing high growthInternet/FMCG clients such as JD, Ali, Baidu and P&G contributed c. 50% ofFM’s ad revenue and their growth remains robust as they are paying moreattention to the inner building and cinema advertisement channels. Ourchannel checks also found strong incremental growth from K12 education andBaijiu companies. For example, mgmt said that Baijiu’s advertisement revenuewas only RMB2-3m in 2016, but it increased 10x to RMB300m in 2017 and islikely to double in 2018E. In education, K12 after-school tutoring companies inparticular are spending more on advertising (for both online and offline classes);these include TAL, EDU, DADA abc (哒哒英语) and Zhangmen (掌门一对一).

    Valuation and risksOur main valuation method is DCF (9.8% WACC, 3% TGR). FM trades at an excashPER of 24x (it had RMB3.8bn net cash as of 9M17) on our 2018E earningsvs. its 26% three-year earnings CAGR. We view risk-reward as attractive. FMpaid 80% of its earnings as dividend and mgmt guides for largely unchangedpayout for FY2017. Risks: 1) more theaters start their own advertisingbusinesses; 2) threats from other advertising modes; 3) a slowdown in China’sdownstream movie industry; 4) a slowdown in internet/FMCG sector growth.

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