The company predicts net profit of 1H23 to 280 million yuan

The company announced the 1H23 performance forecast. It expects 1H23 to achieve net profit of 280 to 380 million yuan from the original parent, 20 million yuan for the same period last year; deducting non-net profit of 260 million to 360 million yuan, a loss of 49 million yuan for the same period last year.

Among them, 2Q23 is expected to achieve net profit of 98 to 198 million yuan from the original mother, and a loss of 196 million yuan for the same period last year, which is slightly lower than our expectations of 200 million yuan. We think the main creative sector is slightly lower than expected.

Key points of interest

Investment in key films and distribution of imported films increased, and business performance was steady in 2Q23. In the creative sector, 1H23 participated in the production of a total of 20 films, with a cumulative box office of 14.671 billion yuan, a market share of 73.6%, an increase of 18.1 ppt over the previous year. Of the 5 films that grossed over 1 billion yuan in 1H23, 4 were produced by the company, including the Spring Festival's top 3 and May 1st box office winners; a total of 11 films participated in 2Q23, including “Life Is Not Familiar” and “The King of the Long Sky.” We expect the participation ratio to be slightly lower than expected. In the distribution sector, 1H23 led or participated in the distribution of 234 domestic films, with a cumulative box office of 16.307 billion yuan. Domestic films accounted for 89.3% of the box office market, an increase of 19.1ppt over the previous year; it distributed 62 imported films, with a cumulative box office of 3,959 billion yuan. The top ten domestic and imported 1H23 national box-office films were all distributed by the company. Furthermore, we expect the profit contribution of the imported films “The Journey to Suzuya” and “The Slam Dunk Master” in 2Q23 to be relatively high. In the screening sector, as of the end of June, the company controlled a total of 131 cinemas (1H23 net decrease of 5) and 985 screens. We believe the screening business is following the gradual recovery of the market. In the technology sector, as of the end of June, 131 CINITY cinemas had been opened in China, and 11 cinemas awaiting opening had been installed; 207 CINITY films had been screened. We expect new installations of CINITY to be installed or accelerated in the second half of the year. With the increase in CINITY cinemas, the company's advantage in high-tech format cinemas is expected to strengthen.

The whole year is rich in content reserves, and participation in key schedules is high. Attention is paid to the flexibility of performance in the second half of the year. Looking ahead, we believe that the movie market is expected to continue its recovery trend, the supply of content will continue to increase, and the company's various businesses are expected to recover steadily. In the creative section, the company has a rich content reserve. The summer program includes “The Super Family”, “Furious”, “Thirty Thousand Miles of Changan” (released), “Megalodon 2: Abyss,” and “Forgotten Thoughts,” etc. The main projection film “Volunteer Army: Troopers Attack” is scheduled for the National Day program. In the distribution sector, we expect imported films to be introduced or continue to be active. Imported films that have already been scheduled for the summer season include “Mission Impossible 7: Fatal Liquidation (Part 1),” “Barbie,” “Megalodon 2: The Abyss,” and “GT Racing: Fast & Furious.” We believe that the company's content investment and distribution advantage is stable, and participation in key programs in the second half of the year is high. Relatively speaking, it benefits more from the normalization of film scheduling and screening, or has high performance flexibility.

Profit forecasting and valuation

Maintaining profit forecasts and outperforming industry ratings, maintaining the target price of 18.9 yuan, corresponding to 35/30 times the P/E of 2023/2024, there is room for an increase of 28.6% from the current stock price. The current stock price is trading 27/23 times the 2023/2024 P/E.

risks

The schedule and box office of key films fell short of expectations, the introduction of imported films fell short of expectations, and competition in the industry intensified.