Category: Money tips Release Date: 2006-03-11
Investment Highlights:
6780 acquisition of additional shares of the company in Shaanxi province's cable network assets, the acquisition cost far less than CITIC Wo Dianguangzhuanmei level, and become the first A shares have a wired network resources and the province's largest cable television subscribers are listed companies, the size of obvious advantages.
China's cable TV network operators, industry is a highly monopolistic industry, compared to telecom IPTV and DBS, we believe that cable networks have a tariff, policies, and scale advantages, as China's digital cable digital TV from the pilot stage to the overall promotion phase, China's cable TV network operators, industry will enter the high-speed growth period.
Radio and Television Network cable television subscribers in a huge room for growth. Company's network covers 7.7 million residential customers, and the company currently only has 350 million users. The company in 2005 added 410,000 subscribers in 2006 added 57 million subscribers, we expect our cable television subscribers in 2010 will reach 5 million in the next four annual compound growth rate of 10%.
Shaanxi Province will enter the digital TV conversion peak. We expect the company from 2007-2010 in each of the Converter 500,000 digital TV subscribers, 80 million, 500 thousand and 50 million, well above market expectations. Basic charge to enhance and promote the new business will drive the company's average monthly charge from residents in 2006 to 13.1 yuan / month in 2010 to upgrade to 25 yuan / month, the annual compound growth rate of 18%.
Digital TV conversions increase the cost of capital expenditures and do not have to worry too much about. The company's telecommunications network and about 1 / 3 of the network is required for the completion of the digital transformation, transformation of the cost far below market expectations.
We expect the company's 2007-2009 EPS were 0.8 yuan, 0.994 yuan and 1.14 yuan ,2007-2010 4-year net profit compound annual growth rate of at least 20%. Taking into account its size and high-growth, we believe that radio and television networks should be given a certain premium, but expects the upcoming equity incentive plan. At present the U.S. cable network industry leader of dynamic price-earnings ratio of 33 times, we are conservative given the company in 2008 to 30 times earnings, the company's reasonable price, at least 30 yuan from the current price is still 28% upside given the "Recommended" rating.
1, Radio and Television Network Company Profile
Radio and Television Network is located in Xi'an, Shaanxi, the original main business includes four channels of television advertising agency business, and Baoji City cable network operations, its major shareholder for Radio, Film and Television Bureau of Shaanxi Province, Shaanxi Province holding Broadcasting Network Cable liability company, owns 36.8% stake.
The company in December 2006 approved by the SFC to 12.98 yuan per share price of additional 6780 million to complete the province's 11 cities and cable network assets of the acquisitions, becoming the first A shares have a wired network resources and the province's largest cable television subscribers are listed companies. Company's price far lower than CITIC Wo Dianguangchuanmei price, size and cost advantages are obvious.
Second, China's cable TV network operators, Industry Analysis
China's cable TV network operators, industry is a high-monopoly and high-growth industries
Cable operators industry is a low-risk, high growth both weak cyclical industries. In the United States, despite the DBS (satellite TV) intense competition, the U.S. cable TV users and the industry scale has continued to grow. Beginning in 1975, the U.S. cable users from the current 9.8 million to 65.5 million, compound annual growth rate of 6%; the U.S. cable industry, income from operations in 1986 to 99.55 million U.S. dollars to 747.16 million U.S. dollars in 2007 , the annual compound growth rate of 10%; the basic programming package price charged by the ratings in 1986 to 10.67 U.S. dollars / month in 2007 increased to 42.76 U.S. dollars / month, the annual compound growth rate of 7%. China started to develop from the 80's cable television, the user-scale high-speed growth in the first half of 2006 the number of users has reached 130.62 million, becoming the world's largest cable TV market.
Cable network operators in China's main rival is IPTV and DBS. Compared with the traditional cable TV, IPTV has a flexible interactive features, from the service method on a competitive advantage. DBS is a satellite digital television short that it be disseminated through satellite digital television signals can not be applied to wired network coverage areas. From the U.S. perspective, the U.S. television viewers focused on the competition between cable and DBS. Cable TV market share of about 70%, and is the only way to provide triple play, which telecom operators IPTV services do not form a serious threat, while the DBS channel is rich in resources with a low tariff features, so the United States, DBS customers rapid growth over the past nine years, compound annual growth rate of 30.9%, the market share of around 29%, is the largest cable TV competitors.
Compared to the U.S. market, we believe that China's cable TV network operators, IPTV and DBS compared to greater competitive advantage, a monopoly is difficult to shake.
1, China's cable TV network operators, industry has a tariff advantage. And compared with international standards, China's cable TV is also a very low level of fees, my monthly charge of about 2-4 U.S. dollars per household, while the U.S. is 60 dollars, Hong Kong, 26 U.S. dollars; my monthly cable TV expenses only family income, 0.4%, while the United States accounted for 1.6%, Hong Kong accounted for 1.3%. The United States is an important reason for the high subscription fees is the cable network operators, programming costs to account for income, 1 / 3, while the cable TV network operators in China not only failed to spending in this area (do not provide paid services in the circumstances) , but also access to various television stations landing fees. At present, China Digital Cable TV monthly charge about 24-28 per hour, while the IPTV fee of 60 yuan / month or so, the tariff advantages of digital television is very obvious. DBS satellite launch failures due to take at least 1-2 years after the introduction, we can hardly expect the standard tariff below the current level of cable digital TV.
2, SARFT policy advantage. The United States and other developed countries, most of the television industry market introduction of market-oriented, but China is still in a monopoly stage of the policy of SARFT. For cable networks, the strict implementation of "one city, one network" management policies and strict licensing access system, IPTV and other competitors, not only in control of SARFT content providers, while these businesses have the authority, as of now has approved only four IPTV licenses. The Film and Television for cable digital TV conversion effort to the promotion, not only developed a strict timetable for the conversion, and according to "promote the pilot units on the overall conversion of digital cable television a number of observations (for trial implementation)", cable network operators in the digital TV conversion will be the national policy and financial support. From overseas experience, the success of IPTV telecom operators have adopted the radio and television content providers to cooperate actively with the model, so from a policy point of view of control, we believe that IPTV is difficult short-term monopoly status of cable television influenced.
3, cable television network, scale advantages. The size of China's cable TV network users is much larger than the size of telecom broadband customers. China's basic cable television networks covered all urban and most rural areas, while China's Internet penetration rate of only 9.4%, of which 18% of urban Internet penetration in rural areas and 3%. Therefore, in carrying out digital cable television business has a huge new customer base. At the same time, from the view of converting the cost of digital TV, cable TV upgrade to digital television should also lower the costs and risks of IPTV and DBS.
On the whole, we believe that the next 3-5 years, IPTV and DBS is also unable to erode cable's market share, up from the long view, cable digital television and telecommunications IPTV before the trend is toward more integrated with each other, rather than replace each other.
Digital TV converter opened the cable network operators, the company's long-term growth of the gate
The introduction of digital television allows cable television network operators to provide one-way from a simple change in broadcast television programs to provide a full range of digital information services (TV, Internet and voice) of the integrated service providers, by providing more value-added services, cable network APRU operators will be significantly improved.
Digital TV has been gradually replacing the analog TV to become a global television industry, the mainstream media. Global digital TV subscribers in 2005 reached 170 million, an increase of more than 2004 of around 40 million. The average global digital TV penetration rate of more than 16%, of which 70% United Kingdom, the United States and Japan, about 50%, the European average penetration rate of digital TV is about 30%.
Thanks to digital TV and related value-added services customers demand for high-speed growth and the resulting gross margin increase, the largest U.S. cable operator Comcast in the first three quarters of 2006 core earnings grew 15%, operating profit increased by 27%, excluding non-recurring earnings and net profit rose 89%. As the company's excellent performance and market expectations for its future good, Comcast shares in the past year rose by 64%, static and dynamic price-earnings ratio, respectively, 42 and 33 times.
Compared with the United States, China's cable TV value-added space for larger APRU. Digital TV caters to the needs of the consumer to upgrade.
From the people's income, national policies and macroeconomic analysis, we now have entered a stage of rapid development of consumer upgrades, digital TV will meet the residents of the higher consumer demand for television entertainment. Secondly, the United States and other countries have already implemented pay-TV in comparison, China has been pursuing a free television, with just the basic maintenance of the ratings, and as the concept of the consumer changes, the program increased demand for differentiated, pay-TV the user ratio will be increased considerably. Under the "2006 China Radio, Film Development Report", as of the end of 2005, China had 108 sets of pay-TV began broadcasting in 2005, the national digital pay TV subscribers 1.39 million, representing 275% growth in 2004, the National Pay-TV revenues 3.16 billion, nearly 1 / 3 of the user to select the pay-TV. From Shenzhen situation, foreign pay-TV, such as HBO, Discovery, National Geographic magazine and the Phoenix Movie Channel, are now being welcomed by the residents. In addition, cable operators are now offering broadband services, cable television subscribers in China's 1.3 trillion, based on the development of cable broadband services, we think it will be a cable network operators in China is very important to the profitability of the composition.
China's digital cable TV from the pilot phase of the
Entered the promotion stage according to radio and television, "Eleventh Five-Year Plan" in the next five years, the digital cable from the pilot phase to full extension phase. Will accelerate the digital transformation of the overall conversion and two-way; in 'Eleventh Five-Year' during the realization of two-way cable television, interactive, multi-function, multi-service; to achieve localization services, industrial operations, large-scale development.
According to the plan, over the past three years, SARFT has been in Qingdao, Hangzhou, Shenzhen, Foshan, Mianyang, more than 10 cities in the full realization of the digital, China's digital TV subscribers in 2002 to 268,000 in 2006, more than 1,100 households, increase the proportion of the country's total cable to 8%. We expect that in 2010 China's digital TV subscribers will reach 81.83 million people in the next four annual compound growth rate of 62%, digital television penetration increased to 60%.
Has completed the conversion from a regional perspective, most of the basic subscription fees have increased about 70% -120%, such as Shenzhen, the basic charge increased by 28%, 83% increase in Chongqing, Jinan increased 115%. There is no increase in fees and a small number of cities, price increases should also be only a matter of time.
3, radio and television network cable television network operator has entered the fast-Business
Radio and Television Network cable television subscribers a huge room for growth
A share compared to a handful of other cable network operators, listed companies, radio and television networks have the highest growth potential within the extended style.
After the acquisition of the assets of the radio and television networks across the province has 3.5 million subscribers, of which about 85% of urban users, rural users account for 15% and, according to Shaanxi Provincial Bureau of Statistics data, Shaanxi Province, has about 11 million households, of which 4.2 million urban users households, 6.8 million rural households, so the future development of space will be mainly in the rural areas. At present, Shaanxi Province has reached 70% cable coverage, that is, 7.7 million have cable television launch conditions. From the view of the circumstances in recent years, by developing the rural market, radio and television networks the number of users grew very strong in 2005 added 410,000 customers, 570,000 added in 2006, we expect the company's cable television subscribers in 2010 will reach 500 million in the next four annual compound growth rate of 10%.
Shaanxi Province, the next three years the peak of digital television conversion, ARPU will increase steadily
We Statistics of the 11 prefectures and cities in Shaanxi Province digital cable converter to implement the views of the whole. Around the city are basically divided into four stages, in 2006 as a pilot phase ,2008-2008 for the promotion period ,2009-2010 as a universal stage, completed in 2011, -2,014 years, acceptance stage, without taking into account new cable the user, it is expected conversion of the number of households in four phases, respectively 23.8 million, 1.59 million, 1.06 million and 61 million, has completed the conversion from the Guangxi province, Qingdao and Shenzhen point of view, we believe that Shaanxi Province, there is no problem to complete this plan. In 2006 the company has completed the conversion of 200,000, we expect a conservative company from 2007-2010 in each of the Converter 500,000 digital TV subscribers, 80 million, 500,000 and 500,000.
Charges, Shaanxi Province, analog TV subscription beginning from the end of 2004 and gradually increased from 10 yuan per household to 14 yuan / household, ARPU of around an average of 12.9 yuan; digital television, subscription fees above the county level of urban residents per household the main terminal 25 yuan per month the rural household 20 yuan for each household the main terminal; urban and rural residents of 10 yuan per month, Vice terminal. With the acceleration of the digital TV transition, we expect ARPU value of radio and television networks, there will be 13.1 yuan per household in 2006 / month in 2010 increased to 25 yuan / month, the annual compound growth rate of 18%.
Cable Broadband will be the company's growth is another driving factor
According to our investigations and studies, the company is currently making great efforts to promote broadband services. The company already has about 150,000 broadband subscribers, well above the Gehua 50000 level.
According to "the 18th China Internet Development of the survey results", China's Internet industry embodies the three characteristics, namely, the number of Chinese Internet users is still growing very fast. In June 2006 the number of Chinese Internet users reached 123 million people, compared with the same period last year increased by 19.4%; second is the number of dial-up and green down the Internet users, while broadband Internet users to maintain rapid growth in June 2006 77 million people , an increase of 45.3%; three of China's Internet user penetration is still at a very low level. The country's Internet penetration rate is only 9.4%, of which 18% of urban Internet penetration, while Japan, South Korea and the United States to 67% or so.
Shaanxi Province in 2005 to intervene broadband Internet users is about 66 million, 1.7 million dial-up users, while the Shaanxi province, there are 4.2 million urban residents, and we expect the majority of dial-up users will be converted to broadband users, so we think of Shaanxi Province Internet broadband users is still very large room for growth. Compared to Telecom Broadband, we believe that provided optical access has two advantages: First, cost-effective, 2M bandwidth of 39 yuan monthly charge is about 60-80 yuan lower than the telecommunications charges; second is a large user base radio and television. Radio-owned TV users can be tap into broadband users, especially during a time when the digital TV transition, more conducive to the promotion of broadband services.
Digital TV conversions increase the cost of capital expenditures and do not have to worry too much about
The market for digital TV conversion and cost of capital expenditure required for the increase in worry, we think that 2:00 would not affect the company's performance and long-term cash flow.
Company's largest investment in the digital TV transition is a complimentary set-top boxes and lines, the digital transformation of metropolitan area networks.
In Hunan Province as an example, the network transformation cost about 500 yuan / household, free set-top box is 500 yuan / household. Compared with the Hunan Province, after a substantial transformation over the past few years, Guangxi, Shaanxi Province, parts of the network of routes have been modified basically finished, just need to access users to transform the client's line, this part is about 200 yuan / household, far less than the investment in Hunan Province, and Shaanxi Province in 2004 has added 1 million subscriber lines have made the digital transformation, without the addition of new input.
According to the company's depreciation policy, set-top boxes in 6 years of depreciation, additional 83 yuan for each set-top box-year depreciation, the route network by 20-year depreciation, an annual increase of depreciation of 20 yuan, while Shaanxi Province, according to digital TV by possession charges 25 yuan / household, transformation compared to the previous 14 yuan / month, an annual increase of 132 yuan of income, so that even without taking into account the premise of other value-added income, large-scale transformation brought about by increased depreciation can be basically the new digital television subscription fees to offset revenue . Personnel costs, according to the radio and television networks and their major shareholders signed additional purchase agreements, the proposed acquisition of assets, personnel placement in accordance with "people as assets go" approach, meaning that only pertain to the acquisition of assets, personnel will receive over, so accepted by the assets The labor costs will be controlled at an appropriate level.
Capital expenditure, we believe that a large-scale capital expenditure is only a short-term behavior. The United States since 1998 a large-scale conversion to digital television in 1999, a substantial increase in capital expenditure, followed by three years of experiencing after a period of massive capital expenditure, capital expenditure back to 1999 levels and remained stable. According to our estimates, radio and television networks over the next four years, the digital transformation of expenditures of approximately 1.531 billion yuan. Acquisition of all the networks in the net assets of about 11 million, according to about 50% of the reasonable level of asset-liability ratio, debt financing of 10 billion company's annual operating cash flow of at least 3-4 million, so we think that companies in the digital transformation of the financial support is not a problem.
Fourth, profit forecasts
Taken together our industry and the company's judgments, we are the company's profit has made the following assumptions:
1. Each project the number of users and rate prediction:
Taking into account the implementation of the new fees have a process in the implementation of the overall digital TV transition users, we assume that the first year, 50% of the users in accordance with the implementation of the new charges, 50% of the user fees in accordance with the original implementation, the second year all the charges under the new calculation. Pay-TV revenues we follow the cable network operators, 50% of the revenue-sharing proportion.
Advertising business, the past few years, remained at around 20% of the increase, we predict the future growth will also be closer to the national growth rate of the advertising industry, we have conservatively estimated annual growth rate of the next four years, 15%, gross margins at 16% or so.
2, cost and capital expenditure projections
3, in predicting the company's main business costs, we divided into two parts, the first part of the main cable television basic business costs, this part of our forecast gross margin levels for 2007-2009 were 32%, 33%, 34% and 35%. Company intends to acquire assets in the past few years, in 29% of basic gross margin, our analysis there are two reasons. 1 as a non-listed companies, the cost of control is not very strict, very conservative accounting methods 2, Shaanxi Radio and Television Network in the past few years, building and developing new business input costs, large, also affected the current profit. The existing listed companies Baoji broadcasting about 55% gross margins, we expect the basis of the overall business after the acquisition to be slightly higher than the 29% gross margin level and year to year. The second part is the cost of new digital television conversion, we analyzed the main two, one is a new depreciation costs, and the other one is a new operating costs, we forecast that its new digital TV revenue accounted for about 15%.
4, we expect the company for 2007-2009 three-year management fee rates were 12%, 10.2% and 9%, income tax free in 2008 (except for advertising), in 2009 to 15% recovery level.
5, we assume that the company began in December 2006 from the merger of the financial statements of the assets acquired
5, valuation and investment advice
Since we have not yet acquired company's assets, a detailed balance sheet data, so we have only an absolute valuation analysis of the company. We believe that for the cable TV network operators, such earnings and cash flow, very stable industry, the relative valuation analysis can reveal the company's reasonably good value.
From the company's share price analysis, we looked mainly for three reasons:
A large-scale network operators should receive market premiums.
The network size for the cable network operators, of great significance, with a large-scale network operators to enjoy the overall market premiums. As the largest U.S. cable operator Comcast, the network has 20 million users, the static price-earnings ratio of its 2006 and 2007 the dynamics of price-earnings ratio reached 42 times and 33 times higher than the other networks for small cable operators. Radio and television networks already have the network resources in Shaanxi province, new users up space in the A-share companies at their highest level, so the market should also be given to its higher level of reasonable price-earnings ratio.
2, and Gehua compared to significantly undervalued the company's market value to five times the P / B level, the company at a reasonable price of 31.4 yuan.
Gehua the current P / B level of about 6.5 times the issuance of radio and television networks after the P / B level of 3.75 times the market value of Gehua 224 billion yuan, 4.55 times the radio and television networks. Although the song China's asset-liability ratio, operating level and the level of consumption in which the market is much better than radio and television networks, radio and television networks, but we should see a much larger scale of users, but also room for growth is very great. Digital television broadcasting network, has been price increases, while the Beijing area is still uncertain whether the level of price increases. We therefore believe that Google China, and radio and television networks such a large P / B gap is unreasonable. If the level of five times book, radio and television networks, a reasonable price level should be 31.5 yuan.
3, the company plans to launch equity incentive plan, management should be given a premium.
From our research perspective, is an enterprising company's management team, after the acquisition of resources for the consolidation and confidence in the digital TV transition, and immediately after completion of the acquisition is expected to launch equity incentive plan, which will make the market for the company's performance expectations more clearly, the company's management should be given a premium.
Comprehensive consideration the above 3 points, we have conservatively estimated the company in 2008 a reasonable dynamic price-earnings ratio of 30 times. We expect the company's 2007-2009 EPS were 0.8 yuan, 0.994 yuan and 1.14 yuan, according to 2008's EPS, the company at a reasonable price of 30 yuan, from the current price is still 28% upside given the "Recommended" rating .
