Visual China (000681): 411 Incident Affects Short-term Results but Customer Growth Trend Stable

Visual China (000681): “411 Incident” Affects Short-term 成都桑拿网 Results but Customer Growth Trend Stable
1H19 results are slightly lower than our expected 1H19 results: revenue 4.2 billion, a decline of 16 per year.49%; net profit attributable to mother 1.33 ppm, a decrease of 3 per year.10%.The performance was slightly lower than our expectations and that of the market, mainly because the company’s business was affected more than expected by the “411 Incident” 1. Development Trends The shutdown and rectification of the website affected performance, and now normal operations have resumed.Affected by the 411 incident, the core business of 1H19 achieved revenue3.9.8 billion, accounting for 99.06%, an annual increase of only 0.1%.According to our calculations, 2Q19 core operating income2.45 ppm, a year-on-year decrease of 14%; however, the gross profit margin of the business remained stable, and the gross profit margin decreased by 0 in 1H19.99pct to 63.33%.At present, the company’s operations are also on track, and even the 411 incident will have a certain impact on the company’s performance in the short term.It is conducive to the orderly development of the industry and is conducive to the company’s healthier and faster development. Increase investment in research and development, and create a “big, medium, and small front desk” model.The number of reports, the company’s R & D investment increased by 12 every year.24% to 28.95 million yuan. If we consider changes in the scope of consolidation, we expect the R & D expenses related to visual content and services to increase.The company has restructured its technology research and development system to aggregate content data, user behavior data, and content usage scenario data. It can improve the efficiency of content use and management for large customers, and gradually improve the company’s ability to standardize and serve a large number of long-tail users. In response to customer differentiated services, the number of customers has steadily increased.Based on the industry and market development trends and huge development space, the company conducts comprehensive research on the application scenarios and content requirements of users in different industries, and formulates different product combinations and price systems for large customers and long-tail customers. The report scale and companyThe number of directly contracted customers has increased by 31% each year.On June 26, the company and AVIC Group’s high-level strategic cooperation agreement, the two sides will carry out in-depth cooperation in copyright documents, becoming a typical case of in-depth cooperation with large customers.The company will focus on providing targeted services to key customers. First, it will fully explore the needs of key customers for all products and applications.We believe that the continuous improvement of customer quality and quantity is an important guarantee for the company’s revenue growth. Earnings Forecasts and Estimates Due to the impact of the 411 incident, we lower our net profit for 2019/2020 by 18.68% / 21.21% to 3.28 ‰ / 4.2.3 billion.The current consensus is 41/2019/2020.5x / 32.2 times.Maintain Outperform rating but lower target price by 8.0% to 24.20 yuan, corresponding to 40 times the 2020 price-earnings ratio, compared with the recent continuous 24.5% upside. Risks Copyright protection risks, customer expansion is not up to expectations, industry competition is intensifying, lifting of restricted stocks may bring trading shocks.