20180119-川财证券-2018_China_Equity_Market_Media_Outlook_25页_3mb

2018 Media Industry Outlook Summary

Core Content and Main Themes

This report outlines the outlook for the media industry in 2018, emphasizing the importance of quality content and channel optimization in driving profitability. The analysis highlights that the media sector's growth potential lies within itself, and companies that focus on endogenous growth and content-channel synergy are expected to lead the market. The report also provides a list of recommended companies and maintains an "Increase" rating for the media sector, citing improved valuation and investment opportunities.

Main Points

• Quality Content as Profitability Driver: Companies that prioritize quality content, such as Cheetah, Netflix, Nintendo, and Mango TV, have demonstrated strong profitability. In 2018, China's media companies are expected to reduce reliance on overseas content and focus on creating exclusive, customized content.
• Endogenous Growth: The media industry's growth is driven by internal factors, such as user preference and content innovation, rather than external expansion. Companies with strong brand recognition, financing capabilities, and R&D investments are more likely to succeed.
• Content and Channel Synergy: The ability to generate high-quality content and integrate it effectively with distribution channels is seen as a key competitive advantage.
• Market Trends: There is a noticeable shift from computer games to mobile games, with mobile games expected to dominate the market in 2018. The ARPU (Average Revenue Per User) for mobile games is currently lower than for computer games but has significant growth potential.

Key Industry Insights

• 2017 Performance: The media sector experienced a decline of 13.4% in 2017, while the CSI 300 increased by 14.4%. The sector's valuation was under pressure due to mergers and acquisitions and declining profitability.
• Profitability and Liquidity: Despite a decline in operating cash flow, games and films showed positive cash flow performance. Profitability remained steady, with gross profit margin and net profit margin on an upward trend.
• User Behavior: The shift from desktop to mobile is a major trend, with mobile devices accounting for a significant portion of internet usage time in China.
• Content Demand: Both new media and traditional television are in high demand for premium content. The concentration ratio of the online drama market increased, indicating a move toward fewer, more dominant players.

Recommended Companies

The following companies are highlighted as having strong potential for growth in 2018:

Content-Driven Growth

• Huace Film & TV (300133.SZ)
• Ciwen Media (002343.SZ)
• Thinkingdom Media (603096.SH)
• Perfect World (002624.SZ)
• Sanqi Interactive Entertainment (002555.SZ)

Content and Channel Synergy

• Happigo Home Shopping (300413.SZ)
• Enlight Media (300251.SZ)
• Kunlun Tech (300418.SZ)

Investment Outlook

• The report maintains an "Increase" rating for the media sector, indicating positive growth prospects.
• With improved content quality, the paying user base is expected to expand, leading to increased revenue and earnings.
• The sector valuation is anticipated to rise as profitability improves and more M&A activities are expected to take place.

Risk Reminder

• Weaker-than-expected performance after M&A
• Less-than-expected endogenous growth
• Policy changes that may impact the industry

Conclusion

The 2018 media industry is poised for growth, driven by the development of quality content and channel optimization. Companies that can effectively integrate these elements are expected to gain a competitive edge. The report also highlights the shift towards mobile gaming and the increasing importance of premium content in attracting and retaining paying users.