Event: Aofei Entertainment released its 2023 mid-year report on August 29, 2023. In the first half of '23, the company achieved revenue of 130 billion yuan, a year-on-year decrease of 2.30%; net profit of 604.5542 million yuan, an increase of 325.72% over the previous year; after deducting non-net profit of 5.0782 million yuan, a year-on-year increase of 237.43%, turning a loss into a profit.

Comment:

The core content is as follows:

Results for the first half of 2023 and Q2 are as follows:

(1) In the first half of '23, the company achieved revenue of 130 billion yuan, a year-on-year decrease of 2.30%; net profit of 604.542 million yuan, an increase of 325.72% over the previous year; deducting non-net profit of 5.0782 million yuan, an increase of 237.43% over the previous year. Among them, the company's overall gross profit margin was 36.77%, up 6.22pcts from the previous year, and the overall net interest rate was 4.53%. In the same period last year, it was -1.87%, turning a loss into a profit.

(2) The 23Q2 split achieved revenue of 688 million yuan, an increase of 5.24% over the previous year; net profit of 43.8803 million yuan, an increase of 1039.24% over the previous year, after deducting non-net profit of 365.303 million yuan, an increase of 1056.16% over the previous year. Among them, the company's overall gross profit margin was 36.79%, up 4.12 pct year on year, and overall net interest rate was 6.24%, up 5.23 pct year on year.

(3) On the cost side, in the first half of '23, the company's sales expenses were 149 million yuan, down 9.93% year on year, sales expenses rate 11.47%, year on year -0.97 pct; management expenses were 168 million yuan, up 5.20% year on year; management expenses were 12.95%, +0.92 pct; R&D expenses were 656.859 million yuan, down 18.85% year on year, and R&D expenses were 5.05%, down -1.03 pct year on year.

The profitability of H1 increased in 2023. At the end of September, we can focus on the release of the Becken Bear movie and the catalytic launch of AI products

(1) In the first half of the year, the company's profitability increased markedly, shipping costs for the baby business fell, the domestic toy business gradually recovered, and the pricing capacity for popular products such as the “Sword Spinner Gyro” increased. By business, the company's toy business 23H1 had revenue of 518 million yuan, up 9.07% year on year, gross profit margin was 42.47%, up 7.91 pct year on year; baby business 23H1 revenue was 577 million yuan, down 9.39% year on year (mainly due to poor international market sentiment in the first quarter), and gross profit margin was 36.00%, up 10.91% year on year.

(2) Highlights of the second half of the year: The company will release the “Becken Bear” movie and launch an AI product at the end of September (announced cooperation with Beijing Hongmian Xiaobing Technology Co., Ltd. on May 31). The boom in the company's main businesses, such as toys and baby businesses, is expected to continue to recover in the third quarter, but the box office for “Super Flying Man” fell short of expectations and may have an impact on the Q3 movie business.

(3) Highlights in '24: The “Happy Goat” movie, and the toy baby business is expected to continue to recover in a procyclical manner.

Investment suggestions: We released the “First Coverage Report of Aofei Entertainment: An IP-Centered Pan-Entertainment Industry Chain Ecosystem, Building a Moat for Content Creation Enterprises” on April 26. We expect the company's operating income in 23-25 to be 2,970/33.88/3,726 billion yuan, respectively, +11.8%/+14.1%/+10.0%, and Guimu's net profit is 1.57/386/453 million yuan, respectively, and +191.5%/146.1%/17.3%, corresponding to the closing price of August 28 PE valuations are 81x/33x/28x respectively. IP+AI development prospects are promising. Short-term AI themes catalyze weak valuation adjustments, and in the long term, we continue to be optimistic about the value of the company's domestic animation IP leaders superimposed by AIGC.

Risk factors: Abnormal fluctuations in stock trading, changes in industry policies, increased market competition, long IP incubation cycles, and large uncertainty about animation, film and television business revenue, etc.