Key points of investment
Incident: The semi-annual report shows that in the first half of 2023, the company achieved operating income of 1,488 billion yuan, a year-on-year decrease of 13.47%, and net profit of 352 million yuan, a year-on-year decrease of 12.70%; basic earnings per share of 0.13 yuan; no increase and no dividends.
The first quarter was affected by the macro environment and revenue confirmation points, and the company's performance for the second quarter increased dramatically: the decline in the company's performance in the first half of the year was influenced to a certain extent by the development of the cinema line industry. Affected by the macro environment, the film market environment in the fourth quarter of last year and the first quarter of this year was poor, and there were few films screened, which affected the company's content procurement. Since the second quarter of this year, cinema line consumption has recovered strongly. The company has increased the procurement and distribution of film and television copyrights. In the second quarter alone, it achieved revenue of 818 million yuan, an increase of 11.79% over the previous year, and a 22.14% increase over the previous year; net profit for the second quarter was 194 million yuan, an increase of 70.79% over the previous year, an increase of 23.15% over the previous year, and the business recovery trend was good. Furthermore, the contract with Tencent generated a lot of revenue in the first quarter of last year, and it is expected that this part of the contract may be confirmed in the second half of this year.
AIGC is driving rapid growth in the digital human business. With the rapid development of AIGC technology this year, the subsidiary Shiyou Technology's four major digital human product systems, real-time digital human product system, AI digital person, SAAS (SAAS), and MAS (Meta Avatar Show) metaverse split show platform, have been widely used in radio and television media, brand marketing, e-commerce livestreaming/short videos, government cultural tourism, education and entertainment, movies and TV shows, AR/VR/AI, and NFT/metaverse in various online and offline scenarios.
The e-commerce marketing business forms a new growth point for the company's performance. On July 8, the company and Huawei Pangu formally signed a cooperation agreement and became the Pangu Grand Model Ecological Partner. The two sides will jointly explore the application and innovation of large AI models in the field of film and television content production, and are expected to expand the company's copyright business to the field of short videos.
Maintain the “Buy-A” rating. The film market recovered beyond expectations this year, which was conducive to the growth of the company's main business; the XR and digital talent businesses, which were initially deployed, combined with AIGC's rapid growth; cooperating with Huawei Pangu or entering the short video AIGC business, formed a new profit growth point. We maintain our profit forecast. We expect 2023-25 EPS to be 0.27/0.37/0.44 yuan, and the corresponding PE is 20/15/13 times.
Risk warning: copyright procurement prices are rising; AIGC development falls short of expectations; new business development falls short of expectations.