Events:

On August 17, the company announced that 2023H1 had a revenue of 1.172 billion yuan (YOY+40.69%), a net profit of 113 million yuan (YOY+265.38%) and a non-return net profit of 74 million yuan (YOY+176.18%).

Main points of investment:

2023H1 performance is growing steadily:

The revenue of 2023Q1/Q2 is 742amp 429 million yuan, the net profit of YOY+9.18%/+180.59%; returning to home is 1490.36 million yuan, and the net profit of YOY+97.84%/+74.61%; deducting the net profit of non-return to home is 13660,000 yuan, YOY+114.48%/+61.27%. The seasonal fluctuation of revenue is affected by the film market. According to Maoyan, 2023Q1/Q2 grossed 10.42 billion yuan at the national box office, recovering to 84.8% and 82.5% of the same period in 2019, while the company's direct cinema grossed 544 trillion yuan.

The film screening business has recovered strongly and is optimistic about the recovery at the box office for the whole year:

(1) 2023H1 film shows a revenue of 1.082 billion yuan, YOY+100.83%. As of the end of 2023H1, the number of directly operated cinemas / screens was 421 / 2686, an increase of 6 / 45 compared with the end of 2022. 2023H1's direct cinemas grossed 867 million yuan (YOY+50.2%), with a market share of 3.65% (an increase of 0.01pct compared with 2022), ranking second in the country.

(2) according to Cat's Eye, the box office in July 2023 reached an all-time high in July, and the overall box office in summer has exceeded 2019, a record high in film history. Looking forward to the release of National Day films such as "rock solid", "volunteers" and "ex-4" will continue to stimulate demand.

(3) continue to promote cinemas to reduce costs and increase efficiency, and expand non-ticket business through various channels: ① deepens rent reduction and energy consumption reduction, innovates venue rental cooperation, organizes various forms of venue activities, and focuses on expanding leisure and entertainment consumption. ② has made great efforts to develop Douyin live streaming / group buying and online store sales channels. 2023H1 Douyin has made 6500 visits and received more than 1 billion videos. Community marketing has expanded private traffic, launched XinHengdian film self-supporting platform, and established a new membership system. ③ set up a professional water bar company and launched a number of new products in 2023, driving the growth of sales revenue.

The film and television investment production business is on the right track:

2023H1 film and television production and distribution business revenue of 90 million yuan, YOY+27.80%. The total box office of the project "wandering Earth 2", "Bear's presence" and "Bear Core" totaled more than 5.5 billion yuan. "Anti-Drug 3" and "Hot" were released in the summer and grossed more than 1.1 billion as of August 22. "thoughts forget" and "Burning Winter" are scheduled for August. Reserves include "worthwhile trip", kidnapping game "Mermaid 2" and so on. The company plans to participate in more than 10 high-quality films every year, and the annual box office of the main cast and participating films will reach 20% and 30% of the total national box office.

Profit forecast and investment rating: the epidemic situation has led to the clearance of the film investment industry, and the company's film investment market share is stable. With the orderly recovery of the film market in 2023, we are optimistic about the steady development of the company's film casting business and the release of film projects. We forecast that the company's net profit from 2023 to 2025 will be 282max 416pm, corresponding to EPS 0.45max 0.66max 0.78 yuan, PE 38.4pm 26.1max 22.0X, first coverage and "Buy" rating.

Risk hints: tighter policy regulation, lower-than-expected box office recovery, lower-than-expected risk of film production cost / project development process / revenue recognition, impairment of inventory, core brain drain, impairment of accounts receivable, industry competition, downward shift of valuation center, market style switch and other risks.