Introduction to this report:

The company has extensive reserves of film and series projects. Nearly 40 films have been broadcast in the past two years, and it is expected to enter the first tier of domestic content production.

Key points of investment:

The works were broadcast one after another, the business gradually improved, and the “increase in holdings” rating was maintained. The company has a rich content reserve, with nearly 40 works scheduled to be screened in the next two years, covering content formats such as movies, series, games, and short and medium dramas. 2023H1 performance is mainly affected by content distribution. The revenue and costs of the reserve project have not been confirmed, but from a full-year perspective, 2023Q4 is expected to be the time when the performance will be released.

As a result, we keep our previous profit forecast unchanged. We expect the 2023-2025 EPS to be 0.36/0.49/0.61 yuan respectively, maintain the target price of 10.80 yuan, and maintain the “increase in holdings” rating.

Event: The company released its semi-annual report for 2023. 2023H1 achieved operating income of 115 million yuan (-28.34%) and net profit of -36 million yuan; 2023Q2 achieved operating income of 72 million yuan (-31.94%), and realized net profit of -22 million yuan.

Performance fell slightly short of expectations, and some reserve projects did not reach the revenue recognition point. The company did not launch any core projects in the first half of 2023, and related revenue costs were not confirmed, which led to a decline in performance. At the same time, the increase in sales and management expenses is mainly due to the increase in the cost of renting new office space during the transition period.

The reserve of movies and series is worth looking forward to. According to the company's latest filming and screening plans, in terms of movies, “Dunhuang Heroes” and “Hot Searches” are expected to be screened in the fourth quarter of 2023. Additionally, 7 films including “Great Future” and “The Club Never Lie Down” are expected to be screened in 2023 or 2024. Eight films, including “Master Boy 2” and “The Sand Sea Gate,” are scheduled to be screened in 2024, and at least 17 films have hit theaters in the past two years. In terms of episodes, it is expected that 8 episodes, including “Unmatched Beauty” and “Orphans on Mars,” will be broadcast in 2023, and another 7 episodes have already been launched. 2023Q4 contributed to the company's main performance quarter, and revenue confirmation for movies and series is expected to pick up performance.

Risk warning: Movie box office falls short of expectations, series payouts are slow, etc.