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Q1 gross margin increase due to cost bonus

Westdollar.com May 15, 2019 00:00 Essence Securities Zhang Licong View original PDF

Zhaochi shares (002429)

Event: Zhaochi shares announced the quarterly report for 2019. According to the announcement, the company's 2019Q1 realized revenue of 2.47 billion yuan, YoY-13.9%; achieved performance of 190 million yuan, YoY+13.6%. Zhaochi focuses on the Internet TV business and rapidly integrates high-quality content resources and Internet platforms through extensional development. At the same time, the company has entered the LED industry chain, and future development is also worthy of attention.

The cost decreased and the gross profit margin increased: The company's 2019Q1 gross margin was 10.4%, compared with +0.3pct. We believe that the gross profit margin of Zhaochi is mainly due to: 1) The price of Q1 TV panel has dropped. At the end of March 2019, the 32-inch panel price was $43, YoY-29.5%. 2) The price of raw materials such as DDR decreased, and the gross profit margin of set-top box business increased. We believe that the cost-end dividend will continue. With the optimization of the company's product structure, there is still room for improvement in the profitability of Zhaochi.

Q1 Single-quarter revenue growth rate decline: Zhaochi Q1 revenue growth was negative, mainly due to the decline in export TV size, the company's average product price fell a lot, but Zhaochi's TV shipments still achieved a small increase. According to Industry Online, from January to March of 2019, the company's LCD TV shipments were 480,000 units, YoY+5.5%.

The US business is less affected by tariffs: According to the announcement, in the list of tariffs on Chinese exports to the United States, the products such as TV sets, set-top boxes, and audio products that are exported to the United States are not included in the tariff list. The revenue of some LED lighting products accounts for a small proportion of the company's total revenue and has limited impact on operations.

Repurchase company shares to enhance shareholder confidence: According to the announcement, as of April 30, 2019, the company repurchased a total of 12.679 million shares in a centralized bidding transaction, accounting for 0.28% of the company's total share capital, and the total amount paid was nearly 37 million yuan (not Including transaction costs), all purchased shares will be used for sale. We believe that this repurchase will help increase the company's long-term investment value and safeguard shareholders' rights and interests.

Significant improvement in operating cash flow: Due to the good return of 2019Q1 channels, the net operating cash flow of Zhaochi was 290 million yuan, compared with -180 million yuan in the same period last year. We believe that sufficient cash flow provides protection for the company's operations.

Investment suggestion: After the establishment of Internet TV as the core strategy, the number of end users of the company will increase rapidly. The establishment of industry-based digital content production will also consolidate the company's leading position in the entire industry chain. We expect the company's EPS from 2019 to 2020 to be 0.13/0.15 yuan, giving the company an initial investment-A investment rating with a 6-month target price of 3.30 yuan, corresponding to a 25-fold dynamic P/E ratio in 2019.

Risk Warning: Internet TV consumer acceptance is low, raw materials and labor costs are rising

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Zhaochi shares fundamental data
  • Total share capital of 4.527 billion shares
  • Circulating shares 3.937 billion shares
  • Earnings per share 0.04 yuan
  • Undistributed profit per share of 0.84 yuan
  • Net assets per share 1.96 yuan
  • Return on equity 2.18%
  • Net profit 18,982,900
  • Net profit growth rate 13.61%
Zhaochi Investment Rating
Overall rating within one month
Overall rating in March
Statistical period Buy Overweight neutral Reduction Sell total
Within one month010001
Within three months010001
Within six months010001
Within a year020002
Zhaochi's earnings forecast
                                index 2018A 2019E 2020E 2021E
Earnings per share (yuan) 0.10 0.12 0.14 0.17
Net profit (100 million yuan) 4.44 5.57 6.38 7.51
name Quote change Number of research reports Institutional investment rating (nearly six months)
Buy Overweight neutral Reduction Sell
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