GeHua Cable TV: A high-probability event of pay-TV fee adjustment

by xuqing1202 on 2009-12-04 19:28:53

Our core viewpoints are as follows: In the short term, the company's growth driver will mainly come from the adjustment of basic cable TV viewing fees in Beijing, which is expected to increase from 18 yuan/month to 23 yuan/month. In the medium term over the next 2-3 years, the main growth driver will come from the gradual popularization of pay-TV. In the long term, the company has the potential to become a comprehensive media operator that covers content production, content integration, and content transmission. With the continuous improvement of the basic information network, for future competition between telecoms and broadcasting companies, whoever takes the lead in media content production will become the dominant force. The scarcity of content production and integration could give the company a first-mover advantage. We predict that the company's EPS for 2009-2011 will be 0.32, 0.36, and 0.43 yuan respectively. Considering the impact of price increases, it will enhance the performance of 2010 and 2011 by 0.25 and 0.26 yuan respectively. Given that the price increase within the next year is a high-probability event, and the company is in the early stage of transformation with rare licenses for program production and integration, we give a "buy" rating, with a target price of 18.3 yuan, corresponding to about 50 times PE for 2010 (the average valuation level of cable operators). If the price adjustment succeeds, it corresponds to about 30 times PE for the year 2010.

1. What does the recent support content for Beijing's cultural industry include?

In 2008, Beijing's information industry basically had no growth overall, but the media industry achieved a growth rate of more than 10%, making the Beijing government pay more attention to the development of the media industry. The "Beijing Information Infrastructure Enhancement Plan" was launched, clearly proposing the construction goals for high-definition interactive networks and programs.

2. The company believes its core value includes two aspects.

The first aspect is that in the past, there were 60 analog TV channels, and now there are 150 digital TV channels. Although the number of channels has increased, channels are still scarce.

The second aspect is that the company currently has program production and integration licenses. North Guang Media Digital TV Company has the qualification for program production, while Ding Vision Media has a national program integration license. Gehua Cable holds 51% equity in North Guang Media Digital TV Company, which controls Ding Vision Digital TV Media Company. Currently, there are only four units with national program integration licenses, including Shanghai Media Group, China Film Group, China Digital Media, and Ding Vision Media.

The company has completed the full layout of the "content production + content integration + content transmission" industrial chain, which is conducive to the company's transition from a single network transmission provider to a comprehensive media operator. In fact, having program production and integration licenses is equivalent to obtaining the qualification to operate a TV station. Compared with traditional TV stations, our company's advantage lies in: Traditional TV stations are under public institution staffing systems, making it difficult to motivate them. However, when the company cooperates with other media groups, it can adopt more flexible cooperation methods, such as equity investment and revenue sharing. In the short term, content business may not directly generate profits, but the company is undoubtedly one of the few cable TV operators that can produce TV programs. In the future, through cooperative operations, the potential value of 4 million Beijing users can be tapped. The channel monitoring function of set-top boxes and newly opened SD online games allow the company to obtain user feedback on program usage, which helps continuously introduce good programs, mine user value, and increase ARPU.

3. Threats from satellite TV and IPTV to cable digital TV.

Satellite TV in Nanjing is generally used in remote areas but lacks two-way functionality. IPTV is limited by network bandwidth, and under the trend of high-definition TV promotion in the broadcasting system, IPTV cannot transmit high-definition programs. Therefore, the three forms are differentiated competitors, and our judgment is that cable digital TV remains the mainstream channel for program content dissemination.

4. Operation status of pay-TV.

We estimate that pay-TV will start formal charging in January next year. Currently, this service has been free for 1.5 years, during which costs have already been reflected. Once charges begin, most of the income will be converted into profit. Statistics show that each user watches about 1.5 hours of pay-TV per day. The specific number of paying users after charging is currently difficult to determine. The base package charge is approximately 50 yuan/month (referencing other identity situations). The current set-top box also has an internet modem, so broadband services can be opened at any time.

Binding sales of these services can bring some benefits, such as increasing the number of broadband users.

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