In the first half of 2023, the company achieved operating income of 2,857 billion yuan, an increase of 87.95% over the previous year; net profit of 360 million yuan, an increase of 1684.56% over the previous year; net profit after deducting non-return net profit of 32.257 billion yuan, a sharp reversal of losses over the previous year. Q2's revenue was 1,412 million yuan, up 146.08% year on year, and 2.30% month on month; net profit returned to 179 million yuan, a sharp reversal of losses year on year, a decrease of 1.71% month on month; net profit after deducting net profit of 162 million yuan, a sharp reversal of losses year on year; a year-on-year increase of 1.02%.

Key points of investment:

The box office of the film industry has rebounded sharply, and the Summer and National Day programs are expected to drive the second half of the year. According to the company's announcement, the total box office of the 2023H1 domestic film market was 26.271 billion yuan, an increase of 52.91% over the previous year. The sharp increase in box office in the movie market led to a recovery in the company's performance, and both revenue and net profit increased sharply in the first half of 2023 and the second quarter. Up to now, the summer box office has exceeded 20 billion yuan, a record high. Excluding the influence of June, the total box office increase in July and August was over 120%. Combined with the impact of the Q4 National Day program, it is expected that Q3 and Q4 will continue to maintain rapid growth in performance.

The company's various businesses have grown to varying degrees. (1) The creative sector achieved revenue of 659 million yuan in the first half of the year, a year-on-year increase of 218.23%, a year-on-year increase of 218.23%, gross margin decreased by 31.19pct to 20.35%, dominated or participated in 20 screenplays, with a total box office of 14.671 billion yuan, accounting for 73.56% of the country's total box office for the same period. Up to now, Q3 has participated in the production and marketing of a total of 6 films, including “Three Thousand Mile of Changan” (total box office of 1,789 million yuan), “Megalodon 2: The Abyss” (total box office of 810 million yuan), “One Hassle” (3.381 billion yuan), and “Enthusiastic” (890 million yuan); (2) the distribution section has distributed 296 films, with a total box office of 20.2067 billion yuan, accounting for a year-on-year increase of 68.77% of the total box office in the country, with revenue of 101,278 billion yuan, a year-on-year increase of 101,278 billion yuan. 5.74% , gross margin increased by 8.70 pct to 32.60%; (3) The screening business achieved revenue of 536 million yuan, an increase of 48.15% over the previous year, gross margin increased sharply by 33.52 pct to 15.22%, and its owned cinemas covered 21,682 blocks of screens, with a market share of 29.02%, a slight increase of 0.87 pct over the previous year; (4) The technology sector's revenue was 254 million yuan, an increase of 8.58% over the previous year, and gross margin increased 3.40 pct to 37.79%; (5) The service business achieved operating income 96.28 million yuan, up 18.72% year on year, and gross margin increased by 31.11pct to 37.68%.

Investment suggestions and profit forecasts: The film industry improved in the first half of the year, and the summer program performed excellently after entering the second half of the year. The performance exceeded expectations or further boosted market confidence, accelerated the scheduling of more films, and continued to provide support for the growth of the film market in the second half of the year. As a leading company in the entire domestic film industry chain, the company will also continue to benefit. Considering that the performance of the Q3 summer program exceeded expectations, all of the company's businesses could benefit. The company's profit forecast was raised. It is estimated that 2023-2025 EPS will be 0.48 yuan/0.62 yuan and 0.75 yuan. At a closing price of 14.79 yuan on August 25, corresponding to PE of 30.80 times, 23.94 times, and 19.76 times, the corresponding PE is 30.80 times, 23.94 times, and 19.76 times, maintaining the “increase in holdings” investment rating.

Risk warning: macroeconomic fluctuations affect consumer demand for entertainment; increased competition in the industry; risk of changes in content policies; performance of film and television content falls short of expectations