FY22 results are in line with forecasts and our expectations
The company announced its 2022 results: operating income of 951 million yuan, a decrease of 23.8% over the previous year; net profit of non-IFRS to the mother was 142 million yuan, a decrease of 49.3% over the previous year, falling within the 135-145 million yuan range of the performance forecast. The company's performance is in line with our expectations.
Development trends
The annual revenue is affected by the content broadcast cycle and the macro environment, but the quality of the series is still excellent. In terms of copyrighted dramas, the works broadcast by the company in 2022 mainly include “Transcendence”, “Picture Book of Crime”, “Coward”, and “Twenty Unfazed 2”. Due to the recurrence of the epidemic, production, filing, and broadcasting of some series progressed later than expected. We judge that due to the increase in the proportion of pure online dramas and the decline in the number of broadcast episodes, revenue from the copyright drama business fell 15.5% year-on-year to 889 million yuan. In terms of content marketing, revenue fell 47.8% year-on-year to $57 million due to the series' theme attributes and the impact of content delays. We believe that although the company's performance has been affected to a certain extent in the context of the COVID-19 pandemic and improving the quality and efficiency of the industry, the company continues to focus on the production of premium copyright dramas. The four broadcast episodes Douban scored 7.9 points each, the highest in previous years, and the quality of the content remained industry-leading.
“Just Love” became a hit, and copyright dramas and content marketing are expected to drive revenue growth. The company's urban emotional drama “Just Love” was broadcast on Tencent Video and CCTV-8 on March 27, and the popularity value on the Tencent video station broke 27,000 on the first weekend of its broadcast; “A Little Heart” (Tencent Video to be broadcast) and “One Thought of Guanshan” (iQiyi to be broadcast) are all in post-production and are pre-sold, and the company expects to broadcast them within the year; in addition, the follow-up series “You Have a Thousand Rides of the Moon”, “The Twelfth Floor Mysteries”, “Chen Ji Gong”, etc., we expect copyright broadcasts for dramas throughout the year, etc. Both numbers and concentrated revenue are expected to increase, and there is room for further increase in production capacity in the future. Furthermore, the company has iteratively upgraded its content marketing system in 2022. We expect that with the launch of high-quality series and the improvement of the macro environment, content marketing is expected to further drive annual performance growth.
The layout of short dramas, IP derivatives, and overseas trips is advancing at an accelerated pace, and new volumes are gradually being released. In terms of short dramas, the company has increased its investment in building leading brands. “Beginning with Divorce” and “29” have been played more than 25/790 million times respectively. The latter was the number one in total number of broadcasts on the entire site for topics related to S-level skits, creating Douyin skits, and opened up forms of monetization such as platform customization, traffic splitting, C-side payments, and business cooperation. In terms of IP derivative development, continue to lay out fields such as musicals, audiobooks, NFTs, screenplay kills, etc., to promote “20 Not Confused 2” and “Illustrated Guide to the Hunt”
Top IPs such as “Just Love” are monetized in multiple ways. In terms of overseas sales, overseas distribution revenue in 2022 increased more than 77% year on year, and overseas distribution revenue of copyrighted dramas increased more than 2.8 times year on year. The company also increased overseas production and co-production. On March 14, the 2023-2024 international film list was released, including series in multiple languages such as Korean, Thai, and Indonesian. The company said that the Thai version of “Just Thirty” plans to launch in 2Q23. We judge that the company is expanding its business model and distribution channels based on its leading content production capabilities, and the new business is expected to gradually release incremental growth.
Profit forecasting and valuation
Maintain earnings forecasts for 2023 and 2024. The current price corresponds to 2023/2024 11.7/7.0 times non-IFRS P/E. Maintaining an outperforming industry rating, taking into account liquidity discounts, the target price was lowered by 28.6% to HK$18.7 (16.0/9.6 times non-IFRS P/E in 2023/2024), with an upward margin of 36.1%.
risks
The timing and performance of content launch are uncertain, competition in the industry intensifies, liquidity risks, and the ban on restricted shares is lifted.