Main points of investment:
Box office champions such as "wandering the Earth" and "Wolf Warriors 2" have verified the sustainability of blockbusters and promoted the company to a new leader in film and television content. The company has successively participated in box office champion / phenomenal films such as "Wolf Warriors 2", "Fanghua", "I am not the God of Medicine", "Nobody" and "wandering the Earth", confirming the company's sustainable explosive ability. The company has participated in the investment and distribution of nearly 25 films since 2014-2018, of which 5 films ranked among the top 10 domestic films at the box office that year. We estimate that the box office champion of the Spring Festival, "wandering the Earth," will eventually earn about 4.7 billion yuan at the box office, bringing the company a gross profit of 300 million yuan to 350 million yuan. In addition to "wandering the Earth", the company will release nearly 10 films and 7-9 TV projects in 2019, and the performance is expected to be more sustainable than expected.
Ability complementary team + investment committee decision-making mechanism + full-process control + three-dimensional publicity, greatly improve the performance continuity of project content companies. Domestic traditional film and television companies generally only have advantages in one of the three major fields of film, television or variety, and it is difficult for the three areas to develop synchronously and evenly. The core reason is that these companies generally only rely on a core founder / family, and their abilities are weak. In contrast, Beijing Culture has distinct competitive advantages: (1) members of the core business team, Song GE, du Yang, Lou Xiaoxi and Wang Jinghua, have worked in film, online drama, variety brokerage and other fields for many years, and have excellent ability in content judgment, investment and project control. (2) the investment committee has strict income measurement standards to avoid the influence of human preference on the decision-making, and the behavior of benefit transfer; (3) the projects such as "I am not the god of medicine", "wandering the Earth" and the subsequent "Tropical past" and "SWAT team" all take the form of cooperative investment with shareholder related party funds to strengthen the interest binding with other producers. (4) the whole process controls the main investment project, has outstanding publicity ability, and has the experience of creating popular style works to maximize the success rate of the project.
Invest 1.3 billion to create the "Fengshen" trilogy, the company is expected to become a SIP-driven platform company of the whole industry chain in the future. From 2016 to 2018, the domestic film market entered a period of steady growth, with a compound annual box office growth rate of 8%, but domestic films achieved a growth rate of 26% in 2018. The audience's taste in cinema has opened a gap with the Hollywood market, which is good for the leading Beijing culture of domestic blockbusters. In the Hollywood market, Marvel's superhero series such as the Avengers, Iron Man, Thor, Captain America and the Guardians of the Galaxy, as well as science fiction series such as the Lord of the Rings, have all achieved huge box office success. Beijing Culture plans to invest no more than 1.3 billion yuan to shoot the Fengshen trilogy, which will be released in the summer from 2020 to 2022, driving the performance of explosive products. With the help of the SIP of "Fengshen", we will comprehensively lay out the whole industrial chain of theme parks, hotels, online dramas, variety shows, etc., and establish a three-dimensional development and three-dimensional marketing system based on the industrial chain, so that the company will become a Hollywood platform company driven by a large IP.
For the first time, coverage gives a "buy" rating. We predict that the company will achieve operating income of 1.699 billion / 2.042 billion / 2.334 billion yuan and net profit of 488 million / 569 million / 660 million yuan from 2019 to 2021, with a corresponding net profit growth rate of 50.0% 16.6% and 15.8%, corresponding to an EPS of 0.68, 0.80 and 0.92 yuan per share. Give the company 24 times the target PE in 2019, corresponding to the target market capitalization of 11.7 billion yuan, with 28% space, given a "buy" rating.
Risk tips: the risk that the box office of the main investment works in the future will fall short of expectations; the risk of TV series project sales falling short of expectations; the policy regulatory risk of the film and television industry; and the risk of corporate governance.