Investment highlight
For the first time, Lemeng Film and Television (09857.HK) rated the outperforming industry with a target price of HK $34.00, based on the Non-IFRS E valuation method, which corresponds to 20 times of Lemeng E in 2023. The reasons are as follows:
Among the leading producers of copyright dramas in China, 75% of the series broadcast in 2019-2021 are high-rated dramas. Since its establishment in 2014, the company has continued to produce boutique dramas. By August 2022, a total of 19 episodes have been produced and distributed, of which 17 are proprietary copyright dramas, including "small" series focusing on family and education topics ("Little parting", "Little Joy", "Little Joy", "Xiaomin Family"), female growth theme series ("Twenty without confusion" and "30 only") and short series "Crime Hunt", "coward" and so on. Six of the eight dramas shown in 2019-2021 were high-rated dramas, with 75% of the high ratings higher than the level of about 45.9% of the top five competitors in the industry.
Have a complete production methodology of high-quality drama, tell a good story and shape value. We believe that the drama industry has entered a new stage of upgrading and upgrading, and content quality has become the key to success. Relying on years of deep ploughing in the industry, Lemeng Film and Television has a mature production methodology of high-quality dramas: in the process of creative development, give full play to the subjective initiative of internal and external talents to create a creative soil for collective creation; in the process of content production, it has an industry-leading and experienced team of producers, and relies on the top control of the management team and the strict supervision of the internal team to ensure high-quality content output. In the distribution process, based on the strong bargaining power of high-quality content, the 15 copyright dramas broadcast by the company from 2016 to 1H22 are pre-sold in advance, and maximize IP value through multi-channel distribution. We believe that a people-oriented and creative drama production system is the key for the company to build and maintain its competitive advantage.
Based on the foundation of high-quality content, deepen diversified realization. Short-term: the company has a rich reserve of film lists. we are optimistic that the company will increase its production capacity through team expansion, serialization, short series and short drama explorations. it is expected that the number of TV series broadcast and published by the company will increase to 123,198 in 2022 and 2023 respectively. In the medium term:
Relying on the advantages of copyright dramas, the company's content marketing gradually covers three parts: IP implantation, IP long tail marketing and IP interest e-commerce, which is expected to become the second growth curve. Long-term: many of the company's representative works have been online on overseas platforms, and we believe that content going out to sea is expected to enhance brand influence and contribute to long-term growth.
What is the biggest difference between us and the market? We believe that the company, as the head series company, will increase the market share in the industry capacity optimization and upgrading, and is optimistic that the company will promote the improvement of copyright drama production capacity and the breakthrough of content marketing business based on leading production capacity and human resources reserve.
Potential catalyst: the increase of production capacity is accelerated, and the development of content marketing business is faster than expected.
Profit forecast and valuation
We estimate that the company's Non-IFRS EPS in 2022 and 2023 will be 0.81 yuan and 1.45 yuan respectively, and the CAGR in 2021-2023 will be 36.7%. We give an outperform industry rating and a target price of HK $34.00 (relative valuation of Non-IFRS E), which corresponds to 20 times Pmax E in 2023. The current price corresponds to 15.9 times the upside space of 27.1% of the 2023 Non-IFRS Pachet Eprit.
Risk
The impact of the epidemic is uncertain, industrial policy changes, industry competition intensifies, industry professionals' personal risks, and new business development is not as good as expected.