1H23 performance is in line with the performance forecast
The company announced 1H23 results: revenue of 372 million yuan, up 66.5% year on year; net profit of 65.84 million yuan from previous year, turning loss into profit, falling into the forecast range of 0.58 to 69 million yuan; after deducting non-net profit of 23.3 million yuan, turning loss into profit year on year, falling into the range of 0.22 to 026 million yuan, in line with our expectations. Among them, 2Q23 revenue was 194 million yuan, up 193.8% year on year; net profit was 29.86 million yuan, turning loss into profit year on year; after deducting non-net loss of 310,000 yuan, 2Q22 loss was 171 million yuan.
Development trends
The “Cinema+” ecosystem creates a differentiated experience, and the operating efficiency of the cinema is steady. In the cinema sector, 1H23's directly-managed cinemas had a cumulative box office of 282 million yuan (excluding service fees, same below), an increase of 113% over the previous year; the market share was 1.19%, an increase of 0.3ppt over the previous year; of these, 2Q23 had a box office of 138 million yuan, with a market share of 1.48%. Affiliated Lianhe Cinemas achieved box office of 1,988 million yuan, with a market share of 8.3%. In 2023, the company's “Cinema+” plan was fully upgraded and implemented. Movie+IP+Perimeteria+business district combined to upgrade the movie-watching experience, driving rapid growth in the box office and non-ticketing business. We believe that the company's “Cinema+” business innovation is expected to drive an increase in the number of movie viewers through differentiated and immersive experiences and increase the economic benefits of cinemas. In the content section, 1H23, Shanghai Film Group participated in the distribution of the films “Chinese Ping Pong: The Last Stand”, “Dunhuang Daughter”, and “Wangdao”. The company stated that in the second half of the year, it will continue to utilize the superior resources of the controlling shareholder, Shanghai Film Group, to increase participation in the promotion of leading films. In terms of profit, the company optimizes the cinema terminal personnel structure, improves terminal operating efficiency and asset quality, and innovates intelligent products and services to reduce cinema operating costs. 1H23 achieved a gross profit margin of 24.6%, which is significantly superior to 1H19 (18.3%) and 1H21 (20.0%) levels.
Promote IP licensing cooperation and focus on diversified derivative value potential. In May 2023, the company completed the acquisition of 51% shares in Shanghai Movie Culture, promoted IP derivative businesses such as commercial licensing, game linking, and marketing licensing based on its 60 classic IPs; and integrated with the “Movie +” scenario to create an IP offline immersive experience. We believe that the company is expected to explore multiple IP derivative values based on the movie culture, open up a second growth curve, and collaborate with the cinema business to enhance the movie viewing experience and economic benefits. On August 29, the company announced that it plans to raise no more than 1.42 billion yuan in capital for classic IP development and renewal projects, “movie+” scene integration and immersive experience projects, IP digital asset libraries and system platform construction projects, etc., to implement the “premium content, big IP development, and digital transformation” strategy and open the “second track” of big IP development.
However, the company said that the distribution plan has yet to be further optimized. The details are subject to subsequent announcements, and it is recommended to pay attention to subsequent related developments. We believe that if the capital increase is successfully implemented, it is expected to provide strong support for IP development and the extension of the “Movie +” scenario, opening up room for long-term growth.
Profit forecasting and valuation
Maintain net profit forecasts. The current price corresponds to 23/24 times 2023/2024 EV/EBITDA. Maintaining a neutral rating, taking into account the downward shift in the industry valuation center, the target price was lowered by 13.9% to 23.6 yuan, corresponding to 25/27 times 2023/2024 EV/EBITDA, with a potential 2.9% upward space.
risks
The movie's box office performance fell short of expectations, IP derivative development fell short of expectations, and distribution progress fell short of expectations.