Consumer goods show strong resilience, awaiting real recovery while focusing on cost control (Frequentz Media 1H22 conference call summary)

Below is the summary of the phone call for the first half of 2022 performance of Focus Media, you can review the financial report interpretation at "Internet plummeting, Focus Media "crashed""

Analyst Q&A

Q: How is the situation in each month of Q2, and how is the recovery of demand?

A: Demand has been weak since the second half of last year. Coupled with the impact of the epidemic in March, April was the most severe, and the revenue decline in April and May exceeded 60%. In June, it gradually returned to normal, but it still hasn't recovered to the same period last year, with a decline of 20%.

Industries that mainly recovered in June: Fast-moving consumer goods, transportation, and communication. Among them, fast-moving consumer goods and transportation increased by 10% compared with the same period last year. Due to the small base of the communication industry, its elasticity is relatively high.

Q: What is the situation of Focus Media's investment in new energy vehicles?

A: Recently, the release of new car models has accelerated, and domestic car brands such as Changan and Dongfeng have also joined. There will be new car models launched this year. In the process of climbing brand awareness, Focus Media is the main offline investment platform.

Weixiaoli mainly invests in posters in Focus Media, because it is result-oriented for sales, so there is a greater demand for terminal flow.

The new energy vehicle brand mainly invests in building TV.

Focus Media is relatively optimistic about the investment situation of new energy vehicles.

Q: What is the trend in the development of new consumer trends in the medium and long term?

A: Compared with other industries, the consumer industry is less volatile. However, new consumption has been mainly affected by changes in the investment and financing market in the past year.

Overall, independent money-making brands are rising, which is a relatively benign development. For example, after a certain instant noodle brand invested in Focus Media, its sales growth quickly exploded during the 618 period.

In the medium term, consumer brands face challenges, mainly due to the reduction of offline traffic, the insignificant growth of traditional e-commerce, and the difficulty of profitable interest-based e-commerce. Therefore, the trend of demand returning to head brand's under the flow dilemma is determined.

Every round is the process of gathering brands. Focus Media is the main channel to promote branding and will continue to play such a role in the future process of brand gathering.

Q: What is the situation of the recovery of cinema media? How will Focus Media cooperate with cinemas in the future?

A: Settlement based on release duration has been gradually introduced. At present, there are still quite many cinemas with different cooperation periods. Flexible arrangements will be made based on different cooperative partners.

The current cinema business has been greatly impacted by the epidemic and the difficulties of the film industry in recent years. However, the company holds high-quality cinema resources. Starting in the third quarter, the cinema business has made positive progress. The company's market share in the movie advertisement is expected to increase in 2022, while strengthening its synergy with the ladder media. Q: Changes in advertising demand for various industries after the epidemic?

A: The main changes in several industries are as follows:

(1) Liquor, which has not been affected much. Headquartered brands have always been advertising through popular channels. Among them, sauce-flavored liquor used to rely primarily on recruitment through partnerships and was mainly advertised in high-speed rails and airports, which were geared towards distributors. Now, in order to solve the problem of sales, advertising is being directed towards end consumers, making the advertising for sauce-flavored liquor relatively incremental compared to before. In addition, some brands are rising and also need brand promotion during their development.

(2) Pharmaceuticals have always been profitable and have not been affected by the economic environment. For example, after the Taiji and Huoxiang Zhengqi oral liquid was advertised and a new scene was created, young people now have a new demand scenario for eating hot pot and easily getting dampness in their bodies, so they take the medicine at the same time. The same goes for products like Hailu eye drops and probiotics.

(3) Supplementary foods have not been doing well and have fallen by 10%. Previously, few supplementary food brands advertised, but we tapped this industry and after advertising for Yishito, sales increased by 40-50% in the first half of the year.

(4) Industries related to gift-giving; although the economy is not good, people still need to maintain their relationships, and there is even more demand for gift-giving. For example, tea. There are relatively more ads being placed lately as the Mid-Autumn Festival approaches. It is expected that high-end tea will be revealed on a large scale.

(5) High-end electric cars, No. 9 on the list for popular advertising.

(6) Cosmetics, advertising is mainly focused on performance-based cosmetic companies and requires a dual channel of brand and flow.

(7) Beer, both traditional and new beer brands are increasing their advertising campaigns.

Overall, the cosmetics and beer industries show two characteristics: one is that the demand for advertising for the top 1-2 brands is strong, and the other is that there are also opportunities for new brands that take a unique approach.

Q: Expansion plan for future locations

A: Currently, it remains basically the same, with ups and downs. There will be no large-scale optimization or expansion this year.

Q: Recovery situation for consumer ads in recent quarters?

A: Milk, food, and beverages are relatively stable, and basic consumer needs are relatively stable. However, exceptional companies can still find a way, such as "Miow Fruit" which experienced offline traffic reduction in the first half of the year. With the introduction of cheese flakes in the first half of the year, and more recently, mozzarella has been added.

During the first half of this year, our consumer product sector dropped by 10%, under the premise of a significant setback in April and May, showing the resilience of consumer goods. Alcoholic beverages, food, and beverages achieved double-digit growth, and pharmaceuticals approached 10% growth.

Overall, fast-moving consumer goods grew by 10% in June. Companies like Junlebao and Miow Fruit have shown outstanding growth. Currently, fast-moving consumer goods account for more than 50%.

Q: Overseas business operations?

A: The overall overseas market is still in the exploration period, but different countries have different entry times.

(1) South Korea entered the market first, with a revenue growth of 30% and a profit growth rate of over 70% in the first half of the year, with a gross profit margin of 58%. It is going up overall, with room for improvement.

The number of locations is also expanding. Currently, South Korea has the most locations overseas and we aim to expand to 90,000 locations by the end of the year.

(2) Singapore entered relatively early but not as big as South Korea. The gross profit margin was 65% in the first half of the year, and the net profit margin was 36%. It was basically at a steady-state level. (3) Indonesia will balance its profits and losses this year and will further increase its number of points. (4) Thailand currently has 2,500 points and plans to expand to more than 10,000 by the end of the year. (5) Hong Kong is expected to achieve 5,000-6,000 points by the end of the year.

Q: What is the competition situation in the domestic property sector and the trend of rent? A: The competition in the property sector is not fierce, and the future rent trend is not rising, so it is relatively stable.

Q: With the epidemic recurring in various places, has there been any change in advertisers' delivery strategy? How does Focus Media respond, for example, with screen upgrades and package upgrades? A: The current strategy is to deliver on a weekly basis, but during the delivery process, if there is an epidemic outbreak in the local area, we can switch at any time and pause delivery or restart on a daily basis. Because Focus Media's building media is push-based, and the intelligent screens are also push-based, they can be switched on a daily basis.

For example, if a brand was advertising in 10 cities and an epidemic broke out in one of the cities on Wednesday, the ad could be switched off on Wednesday evening and switched to another city or stopped. So the impact of this aspect is not significant, and there has been no large-scale cessation of advertising in major cities.

The impact of the cessation of advertising in single surrounding cities, such as several days or one week of silence, is much smaller compared to the impact in April and May of this year.

Q: Why is the investment of major Internet platforms unstable in Focus Media? How to judge the investment trend of big platform and vertical platform companies in the future? A: Internet platforms have entered the second half, that is, the industry growth rate has encountered a bottleneck. They are constantly optimizing themselves and judging new trends. In fact, the investment of major platforms is still possible. In the first half of the year, it was mainly due to the epidemic causing logistics disruptions, which affected the investment of e-commerce platforms. The investment capacity of small platforms is getting weaker and weaker.

Currently, the e-commerce platform is recovering well, and although the growth rate has slowed down, it is still relatively good. Focus Media currently covers 200-300 million core groups with resilient consumption and purchasing power. Although online platforms have 800-900 million traffic, the real purchasing power comes from the mainstream group of 2-3 hundred million, which also accounts for 70%-80% of China's purchasing power, and Focus Media covers this group. Therefore, although the flow of Focus Media may not be as high as that of online platforms, it has basically covered the valuable flow.

My judgment on the investment trend of Internet platforms is that it will gradually stabilize, and the first half of the year was still heavily influenced by the epidemic.

Q: Prospects for cinema advertising in H2 and next year? A: Since there are still sporadic outbreaks in various places, the impact on the cinema business is still ongoing, and it is estimated that it is difficult to change direction in the short term. However, in the short term, hot movies such as "The Wandering Earth" and the upcoming National Day holiday period will still have some hotspots in local markets.

Other factors are the development difficulties of the film industry itself. But we are also seeing improvements in factors that suppress movie viewing, such as a significant increase in new film releases, and the pressure of rising ticket prices will be somewhat alleviated by the recent national subsidy policy. At the macro level, consumption patterns and changes in the pandemic still need close attention, as they are important external factors for the recovery of the film market.

Q: There is pressure on revenue this year, how to ease the pressure on the profit side?

A: Every time there is a pandemic, we are doing cost control, so that the cost is stable and trending downward. Through efficiency improvement, personnel costs have also declined to some extent, and the comprehensive cost is in a downward range. I think cost control is still good at present. So now the main focus is on waiting for the market to recover and opening up revenue.

Q: Trend of advertising prices this year, space for price increases next year?

A: There was no price increase as planned on July 1 this year. Based on the current market environment, whether to raise prices in January next year still needs further evaluation. Because costs are relatively stable, it depends on whether there are good indicators on the sales side under the recovery situation in the fourth quarter. If there are clear signs of recovery in Q4, we will consider raising prices once a year. If the market environment still poses challenges, we will discuss with customers whether we should not raise prices like in 2020.

Q: How is the situation with the launch of ready-to-eat meals? What is the target for this year?

A: We all know about the leading companies in the ready-to-eat meal sector. The consumer groups for pre-made meals match our target audience. The most popular items are crayfish and sour fish, and leading brands with offline stores, such as "舌尖" and "锅圈，" are now advertising on the platform.

Geographically, they are mainly focused on Shanghai and the Yangtze River Delta area.

In my opinion, next year will be a year of growth for pre-made meals. Leading companies are currently preparing their channels and supply chains.

However, overall, the proportion of ready-to-eat meal advertisers on the platform is relatively limited, but if convenience foods like instant noodles and pasta are added, it accounts for a few percentage points.

Q: The provision for bad debt increased in the first half of the year. What is the outlook for the future?

A: This is mainly due to the sudden outbreak of the pandemic. The company chose to be cautious about the future collection of accounts receivable, so it increased the provision for risky customers. However, The second quarter was an extreme case (under extreme pessimism). In June, we saw that the pandemic control measures in various countries were improving, and the market was gradually returning to normal. Therefore, the accounts receivable policy will return to normal, and the provision for bad debts will also return to normal.

Q: What is the proportion of traditional and new consumption in the consumer industry, and the changes in the number of customers?

A: In the first half of this year, the proportion of traditional and new consumption was 80% and 20%, respectively. New consumption is more affected by the environment, and it fell by 20% in the first half of the year, while traditional consumption fell by 9%.

The overall number of customers is stable, traditional consumption is stable in terms of customer volume and unit prices, but both have decreased slightly. The number of new consumption customers has increased by 53, but the pandemic has affected the operation and placement of the entire customer base, so the unit price has fallen. However, more and more new consumer brands see us as an important advertising platform.

Risk disclosure and statement for this article: Dolphin Analyst Disclaimer and General Disclosure