Key points of investment

Incidents: The company achieved revenue of 3,907 million yuan in 2022, an increase of 4.83% over the previous year; the net profit of the mother was 521 million yuan, an increase of 20.66% over the previous year; the basic earnings per share were 0.20 yuan; no increase in dividends, no stock transfers. In the first quarter of 2023, the company achieved revenue of 670 million yuan, a year-on-year decrease of 32.19%; the net profit of the mother was 153 million yuan, a decrease of 45.49% over the previous year; and basic earnings per share were 0.06 yuan.

The annual report exceeded expectations. In the first quarter of last year, it was confirmed that the base was too high due to a one-time confirmation of large contract revenue: the company's 2022 equity incentive target was 700 million yuan (after deducting 180 million equity incentive expenses of 502 million), but the report showed that the company calculated large amounts of bad debts and goodwill from film and television content production many years ago, and still achieved the above performance. The actual business situation exceeded expectations, and there was no such risk in the future. In the first quarter of this year, since a large amount of revenue from Tencent related contracts was confirmed at once during the same period last year, the base figure was too high. In fact, compared to the first quarter of 2021, an increase of 58.36% was achieved.

Benefiting from the recovery of the film and television industry, the film and television copyright operation business is expected to improve further. In 2022, the company's new media copyright operation and distribution business achieved net profit of 834 million yuan, an increase of 56.41% over the previous year, and is in an absolute leading position in the industry. It is expected that this year, with the recovery of the film and television industry after the pandemic, market supply will increase, and the abundance of content that companies can purchase will further promote the growth of related businesses and revenue.

With an early layout, the digital human business led the market across the board. Shiyou Technology, a subsidiary that invested in 2016, has an absolute lead in terms of underlying algorithms, product technology, operation services, etc., and released the first AI digital human system BOTA incorporating AIGC in April. The company's self-developed “digital factory”, “virtual content SaaS platform”, and “metaverse split show platform” have created more than 800 digital people for nearly 1,000 customers, including the world's top 500 customers, including CCTV, Mobile, Huawei, and Ali. 2022 has provided the company with an investment return of nearly ten million dollars.

Give a “Buy-A” rating. AIGC technology will provide new development opportunities for the company's three major businesses, audio and video technology, digital people, and film and television copyright. The recovery of the film and television industry will directly benefit the increase in revenue and profit from the company's copyright business. The 2023-25 EPS is expected to be 0.28/0.38/0.44 yuan, and the corresponding PE is 25/19/16 times.

Risk warning: The recovery of the film and television industry is lower than expected; the digital human business falls short of expectations, etc.