Events:

On October 20, the company announced that 2023Q3 had a revenue of 781 million yuan (YOY+99.0%), a net profit of 123 million yuan (YOY+421.9%) and a non-return net profit of 98 million yuan (YOY+283.6%).

Main points of investment:

The film investment production business is a drag on 2023Q3's performance:

(1) the company's 2023Q3 revenue is 781 million yuan, and YOY+99.0%,QoQ+82.0%, increases by 4.9% over 2019Q3; the net profit from home is 123 million yuan, while YOY+421.9%,QoQ+437.1%, increases by 41.1% over 2019Q3; after deducting 98 million yuan from non-home net profit, YOY+283.6%,QoQ+257.6%, increases by 30.5% compared with 2019Q3.

(2) according to Cat's Eye, the box office of 2023Q3 cinema is 640 million yuan (excluding service charge, 530 million yuan for 2019Q3 and 540 million yuan for 2023Q1). The company's 2023Q3 revenue increased by 39.29 million yuan compared with 2023Q1, while the return net profit decreased by 26.34 million yuan. Assuming that the company's film projection revenue is about 95% of the box office (based on the 2019 go 2021 calculation), we speculate that the 2023Q3 projection revenue is about 90 million yuan higher than that of 2023Q1, and the cost is basically the same as that of 2023Q1, so we speculate that the decline in 2023Q3's performance compared with 2023Q1 is mainly due to the lower performance of film and television production and distribution business than 2023Q1. 2023Q3 participated in the movie "Hot" and "Super Family" (the box office was 900 million yuan respectively), and the performance of "Super Family" was lower than expected; the National Day file participated in "ex-4" and "volunteers: male soldiers" grossed 9gamma 700 million yuan (a total of 470 million yuan was included in Q3). The company 2023Q1 took part in "Bear haunts" and "wandering the Earth 2" with a total box office of more than 5.5 billion yuan.

2023Q3 cinemas have expanded steadily, with a steady increase in market share compared with the previous month:

(1) the company continues to optimize the operation of cinemas, steadily expand and steadily increase its market share. By the end of 2023Q3, the company has opened 429 directly operated cinemas with 2735 screens, while 2023Q3 has opened 8 new directly operated cinemas with 48 new screens. According to PR Newswire, on October 20, the company and IMAX announced 20 new IMAX cinemas in China (the company's total number of IMAX cinemas will reach 26). The new cinemas will be located in Jingdezhen, Wulanchabu and Zhangjiakou for the first time, and new stores will also be opened in Hangzhou, Guangzhou and Chengdu. This partnership is the largest new cinema agreement signed by IMAX in China in the past four years. According to Cat's Eye, 2023Q3 has a higher 0.19pct and 0.15pct market share than 2019Q3 and 0.15pct.

(2) there are a large number of 2023Q4 films with a wide range of categories, including "second-hand masterpiece", "Save the suspect", "Mr. Red carpet", "knife Tip", "mistakes by the Riverside", "Red Pig" and "I am a High Mountain". The box office is expected to continue to recover, and we are optimistic about the increase in the company's film projection market share and the release of film screening business performance.

The film is rich in content and is expected to contribute to performance flexibility:

(1) the company's reserve film "Save the suspect" is scheduled for November 3, "Wade through the Sea of anger" on November 25, "kidnapping Game", "defiant 2" (expected to be Q4), "The Legend of the Condor Heroes: the Master of Chivalry", "Bear haunting: reversing time and Space" (expected to schedule the Spring Festival in 2024), "Mermaid 2" and so on.

(2) the company is incubating independent original TV dramas, online dramas and online movies, actively developing the investment business of account-sharing online dramas and online films based on iQIYI, Inc. 's "Youth Entrepreneurship Project", and building the ability and channels for the promotion of film and TV drama projects.

Profit forecast and investment rating: the epidemic situation has led to the clearance of the film investment industry, and the company's film investment market share is stable. With the orderly recovery of the film market in 2023, we are optimistic about the steady development of the company's film casting business and the release of film projects. Under prudent expectations, we have adjusted the company's profit forecast and expect the company's 2023-2025 net profit to be 2.62max 424max 496 million, corresponding to EPS 0.41, 0.67, 0.78 and PE 33.6, 20.8, 17.8X, maintaining a "buy" rating.

Risk hints: tighter policy regulation, lower-than-expected box office recovery, lower-than-expected risk of film production cost / project development process / revenue recognition, impairment of inventory, core brain drain, impairment of accounts receivable, industry competition, downward shift of valuation center, market style switch and other risks.