Incident: The company announced results for '22 and 23Q1, achieving revenue of 2,920 million yuan in '22, down 49.79% from the previous year; Guimu's net loss was 215 million yuan (vs. Gimu's net profit of 236 million yuan in '21), due to the pandemic having a major impact on the film and television industry. In 23Q1, the company achieved revenue of 1,445 million yuan, an increase of 52.71% over the previous year, and achieved net profit of 182 million yuan, an increase of 56.89% over the previous year. This was due to the recovery of the industry driven by the Spring Festival holiday.

Comment: The company's various business performance in '22 was under pressure. During the epidemic, the shutdown of cinemas, the postponement of film screenings, and the slowdown in equipment sales led to a decline in the company's various business revenues. By business, the revenue from the film creation business was 408 million yuan, a decrease of 64.75% over the previous year; 2) the revenue from the film distribution business was 970 million yuan, a decrease of 43.11% over the previous year; 4) the revenue from the film and television technology business was 706 million yuan, a decrease of 49.71% over the previous year; 5) the film and television service business was 148 million yuan, a decrease of 32.75% from the previous year. In '22, the company calculated 298 million yuan of impairment provisions for accounts receivable, inventory and fixed assets based on the overall situation of the industry and changes in customer credit conditions, resulting in losses throughout the year.

The restoration of demand for movies is off to a good start, and the company has strong production and distribution capabilities. 1) The industry's recovery trend is beginning to show: the total box office of national movies in '22 was 30.067 billion yuan, down 36.38% from 2020; the film market clearly recovered in early '23, and the total number of movies in 23Q1 was 15.858 billion yuan, an increase of 13.45% over the previous year, and the number of movie viewers reached 337 million. 2) The company continues to consolidate its leading position in production and distribution: in '22, the company produced 14 films and placed on the market, with a total box office of 14.5 billion yuan, accounting for 57% of the country's domestic film box office during the same period; distributed 448 films, achieving a box office of 22.266 billion yuan, accounting for about 78% of the country's total box office, of which domestic films distributed accounted for about 82%; 9 of the top 10 box-office films in '22 were led or co-distributed by the company. On 23Q1, the company led or participated in the production and launch of 9 films, with a total box office of 11.897 billion yuan, accounting for 85.40% of the total box office of domestic films during the same period. The Spring Festival sci-fi blockbuster “Wandering Earth 2”, which was exported by the company, broke 32 records on the first day of its release, making it the highest-rated sci-fi movie in China.

3) Strengthen cinema management: In '22, the company's controlled theaters and controlled cinemas covered a total of 2,1577 screens and 2,7091 million seats nationwide, with a screen market share of 27.91%; holding cinemas achieved a total box office of 563 million yuan, with an average single-screen output of 543,500 yuan, leading the industry in operating indicators.

The company has barriers to the distribution of imported films and has a rich reserve of film projects. China Film is one of only two companies in China that is qualified to distribute imported films, benefiting from the upturn in the introduction of imported films. The first animated film of the same name for the phenomenal IP “Slam Dunk” was screened on April 20. The total box office grossing exceeded 100 million yuan on the first day of release; the introduced films “Guardians of the Galaxy 3” and “Fast and Furious 10” will be screened in May, and the supply of subsequent content will not decrease.

Profit forecasting, valuation and ratings: The company is a leading producer and distributor of films. It has barriers to the distribution of imported films. Subsequent film releases have led to improved performance. The 23-24 revenue forecast was maintained, adding 8.59 billion yuan to the 25-year revenue forecast; maintaining the 23-24 net profit forecast, increasing the 25-year net profit of the mother by 1.37 billion yuan; and maintaining the “increase in holdings” rating as the film and television industry ushered in a recovery window and industry sentiment increased.

Risk warning: demand for movies falls short of expectations, film and television production falls short of expectations, policy risks.