1H15 results in line with expectations
In 1H15, Wisdom reported revenue of Rmb295mn (-8.2% YoY);revenue from sports events +50% YoY to Rmb107mn or 36% ofthe total. Gross profit was Rmb141mn (-4.5% YoY). Net profitdecreased 8.8% YoY to Rmb93mn.
Trends to watch
Strong sports operation growth expected to continue in2H. Driven by its sports events with self-owned intellectualproperty rights & strategic cooperation with 15 provinces,revenue from Wisdom’s events grew 50% YoY in 1H15 with agross margin of 62.6%. We expect events to account for >50%of Wisdom’s revenue and its blended GM to improve as sportsoperation generates a higher margin than traditional business.
Traditional media business faces headwinds due to softmacroeconomic growth. Program & branding revenuedecreased 25% in 1H15. We believe its traditional business willstill face headwinds in 2H15 due to the unfavorablemacroeconomic conditions, but we don’t expect a sharperdecline than in 1H15 given the company’s efforts.
Earnings revisions
We revise down 2015e/16e revenue by 24%/29% toRmb768mn/Rmb939mn. We cut 2015e net profit by16% to Rmb267mn, implying EPS of HK$0.22 (diluted).Valuation and recommendationWe remove Wisdom from our Conviction BUY list andmaintain a BUY rating. We trim our TP by 29% fromHK$9.3 to HK$6.6 based on 30x 2015e P/E.
Risks
Weaker market demand; stricter regulation of sports events.