AVIC Securities: Gave Huayang Lianzhong a buy rating

2022-01-20Pei Yifan of AVIC Securities Co., Ltd. conducted a study on Huayang Lianzhong and released a research report "Riding the East Wind of Policy, Leveraging The Synergy of Multiple Parties to Lead the New Wave of Digital Economy", this report gives a buy rating to Huayang Lianzhong, and the current stock price is 25.24 yuan.

Huayang Lianzhong (603825)

Event: On January 15, 2022, Huayang Lianzhong signed a strategic cooperation agreement with Shanghai Burning Wheat Network Technology Co., Ltd. and Joy Entertainment (Hangzhou) Co., Ltd., and the three parties intend to establish a joint venture company (Huayang Lianzhong intends to hold 40% of the shares, Burning Wheat Technology intends to hold 30% of the shares, and Joy Entertainment intends to hold 30% of the shares) to explore the production and construction of digital content in the meta-universe, inject new momentum into the business era of digital transformation, and make a contribution to promoting the development of digital industries in key areas and standardizing the development of digital economy.

Investment Highlights:

The digital economy is facing the east wind of policy, and the meta-universe industry is accelerating its landing. On January 12, the State Council officially issued the "14th Five-Year Plan for the Development of the Digital Economy", proposing that by 2025, the digital economy will move towards a period of comprehensive expansion, the added value of the core industries of the digital economy will account for 10% of GDP, and the scale of software and information technology service industries will reach 14 trillion yuan; the second issue of Qiushi magazine published on January 16 published an important article "Continuously Strengthening and Optimizing the Digital Economy of the Mainland", which pointed out that it is necessary to strengthen key core technologies and accelerate the construction of new infrastructure. Promote the integrated development of the digital economy and the real economy, promote the development of digital industries in key areas, standardize the development of the digital economy, improve the governance system of the digital economy, and actively participate in international cooperation in the digital economy.

The three parties complement each other's advantages and work together to create a new digital business ecosystem in the meta-universe. Huayang Lianzhong, Burning Wheat Technology and Joy Entertainment intend to establish a joint venture company, Huayang Lianzhong as the exclusive supplier of official communication agency services for the 2022 Winter Olympic and Paralympic Winter Games, with solid customers, media resources, big data technology, integration of the advantages of all parties to support the commercial monetization of the joint venture's digital virtual IP; Huayang Lianzhong will make every effort to provide technical support for the production of digital virtual IP of the joint venture company, and jointly explore the resource authorization of the existing digital virtual IP Joy Entertainment will be responsible for the development and optimization of engine technology, and develop more cinematic content and commercial applications for virtual IP.

The digital human industry has entered an accelerated period, and the traffic code of the meta-universe era. Virtual digital people exist in digital form, with human appearance, characteristics, behavior, relying on the virtual image displayed by science and technology, and are the necessary avatars to enter the digital world. With the development of the meta-universe industry, the application of digital employees, virtual idols, virtual spokespersons, virtual anchors and other fields in fashion, sports, audio-visual entertainment and other fields has begun to emerge, exploring new business models. The "Virtual Digital Human In-depth Industry Report" predicts that by 2030, the overall market size of virtual digital people in mainland China will reach 270 billion yuan, ushering in a broad application space.

Profit Forecast and Investment Rating: It is expected that the company's net profit attributable to the parent in 21-23 years will be 2.81/5.19/677 million yuan, EPS will be 1.11/2.05/2.67 yuan, corresponding to PE 25/14/10 times, respectively, maintaining the "buy" rating.

Risk warning: macroeconomic downturn, repeated epidemics, intensified industry competition, and new businesses are less than expected

A total of 4 institutions have given ratings and 4 buy ratings in the last 90 days; the average target price of institutions in the past 90 days has been 39.31; the Valuation Analysis Tool of Securities Star shows that Huayang Lianzhong (603825) good company rating is 3 stars, good price rating is 3.5 stars, and valuation comprehensive rating is 3.5 stars. (Rating Range: 1 ~ 5 stars, maximum 5 stars)