The following is a summary of the report:
Most of its revenues in line with expectations: Zhongyi quarter revenue of $1.25 billion, an increase of 19%, annulus comparing fell 13%), than we expected 5% higher. According to non US GAAP, American Depositary Receipts earnings per share of $0.16, an increase of 11%, basically in line with our expectations.
Favorable factors: 1) commercial premises network revenue year-on-year increase of 46%, up to 40% of total revenue; 2) the network advertising revenue grew 32%, 23 per cent of total revenue; 3) due to the recovery of growth in demand for advertising and pricing, all make the optimistic forecasts for the second quarter, total revenue of the commercial building network, stores terminal network and framework of network advertisement may growth 20-23% and an increase of 10-13%. It is worth noting that the public is expected to be in July to raise the price of advertising again.
Negative factors: 1) framework for online advertising revenue accounted for 20% of total revenue) year-on-year growth of only 5%; 2) operating cash flow chain reduce 92%, main reason is: prepaid terminal stores network rent, payment in the fourth quarter of 2009 income tax, to solve the season of 2008 a pile of commercial arbitration cases and income reduction.
Thanks to a rebound in advertising business: we calculated by discounted cash flow valuation method (DCF) to get a share of the value of the stock is $24.5, indicating that the stock has a 62% rise in space. We think, cent is numerous, thanks to the recovery of China's advertising business, because: 1) Baidu expected second quarter revenue grew by about 70%; 2) AirMedia expected 2010 revenue grew 50-65%; 3) Sina and Sohu are expected to increase in advertising revenue. We analyzed that: 1) total revenue of the focus of this year may be an increase of about 20%, and in 2009 total revenue fell 21%; 2) focus in 2010 non GAAP operating profit rate will increase by 10% to 30%, mainly due to operating leverage; 3) due to the local economic growth and increase in disposable income, we believe that the focus to three or four lines of urban expansion will be to bring more advertising income; 4) net cash and the replacement cost of all outdoor advertising accounted for about 35-40% of its market value.
Stock rating: Overweight
Industry Outlook: attractive
The actual earnings per share calculated by the ModelWare model: (December 2009) $1.61
Expected earnings per share calculated by the ModelWare model: (December 2010) $0.40; (December 2011) $1.17; (December 2012) $1.27