Event: Main wired network enterprises’ share prices dived substantially in recent three months, with Beijing Gehua CATV Network (600037) slumped by 37.65%, Shaanxi Broadcast & TV Network Intermed (600831) by 41%, and Shenzhen Topway Video Communication (002238) by 20%. So far, 2008 P/E ratio of these companies has fallen to 20x-25x from 45x-50x earlier this year, and EV/EBITDA to 6x-10x for the same period. Given defensiveness and weak periodicity of the sector, we think it is the right moment for investors to invest in shares of the main listed companies.
Our Analysis and Estimation: Generally, we recommend this to investors as defensive & weak periodic sector rather than the rapid-growth one.
Ideal gaining mode for digital TV VAS to be explored: As Appendix III indicates, the sector still has a long way to go before realizing rapid growth by way of value-added service.
Cost pressure from digital TV transference can be eased by escalation of license fee.
Although improvement in license fee will not cause substantial slide in gross margin of the enterprises; however, for companies who are facing the digital TV transference summit, current cash flow will suffer an obvious decline. As a result, this will create large financial pressure for those enterprises of high-liability ratio, such as Shaanxi Broadcast & TV Network Intermed (600831) and Hunan TV & Broadcast Intermediary (000917), etc.
Monopoly advantage is retreating, but will remain within future 3-5 years.
Investment Suggestion: We remain our views in 2008 annual report and 2008 interim report; we are optimistic about the sector’s mid-long term growth and due to channel monopolization & steady current cash flow of wired network operators, we consider the sector as the top-quality defensive sector which deserves a comparatively higher valuation than market average. Present P/E ratio of 20-25x, EV/08EBITDA of 6-10x are deemed to be a reasonable investment range.
We hereby up-regulate our rating to “Recommended” for counters of Beijing Gehua CATV Network (600037) and Shaanxi Broadcast & TV Network Intermed (600831), meantime remain rating of “Recommended” intact to Shenzhen Topway Video Communication (002238).