Events: 23M9/23Q3 's revenue is 1.02 billion yuan, yoy+12.2%/-13.3%; 23M9/23Q3 's homed net profit is 2.437 million yuan / 39.492 million yuan. The decline in yoy+102.0%/+163.0%; 's revenue in the third quarter is mainly due to overseas company Crazy Maple Studio (hereinafter referred to as CMS), which accounts for 21.4% of the company's revenue in 22Q3; while the profit side is eye-catching, mainly due to cost-side optimization.

The decline in revenue was mainly due to overseas companies' CMS statements, while the profit side performed brightly. The company announced on 23-04-26 that the voting rights of the overseas subsidiary CMS were adjusted from 50.9% to 47.8%, and the shareholding ratio remained unchanged at 49.16%. After the statement was issued on 23-05-01, it was measured by the equity method.

On the revenue side of ①, 22Q3 CMS revenue is 90.851 million yuan, accounting for 21.4% of 22Q3 Chinese online revenue. CMS 23Q3 revenue will no longer be included in the consolidated report. Excluding 22Q3 CMS revenue, Chinese online 23Q3 revenue grew by 10 per cent year-on-year. The return net profit of ② is less affected. After the statement, the net profit of CMS is recognized as investment income according to the proportion of shareholding. 23Q3 achieved a net investment income of 17.562 million yuan, yoy+230.4%. The high profit growth of ③ is mainly due to cost optimization. The sales / management / R & D expense rates of 23Q3 are 29.0% 8.0% and 4.6% respectively, with effective cost control.

Paid video series start quickly and have multiple layouts at home and abroad. The company launched the domestic paid video drama business at the beginning of 22, and has launched a number of popular dramas. At present, the product reserve is rich. Dozens of works such as "the East Palace on the Moon" and "Xianjun have been robbed" have been filmed, and many works such as "fake puppet Tiancheng", "Cloud temples" and other works will be released soon. The company's account "Wild Elephant Theater" has 1.16 million Douyin fans. Overseas, the company launched the short drama application ReelShort,SensorTower in August 22, and the data show that the net flow of both ends of iOS+Google Play in the first three quarters of 23 was 480000 / 2.23 million / 14.84 million US dollars respectively, which continued to grow at a high level from the previous quarter.

In October, the "Chinese Xiaoyao" large model opened internal testing, with a wide range of potential target users. As the world's first large model of ten thousand character creation, "Chinese Xiaoyao" can generate ten thousand words with one click, write a novel with one picture, and read 1 million words at a time. It can also provide functions such as story conception, plot arrangement, content writing, character dialogue, illustration production, and even assist the whole creation cycle. In 2022, the total number of Chinese online literature writers has exceeded 22.78 million, and the number of original online writers under Chinese online has exceeded 4.5 million. "Chinese Xiaoyao" has a wide range of potential users.

"Shura Wushu God" after the launch to maintain high heat, AIGC empowered cartoon adaptation. The company and Tencent video jointly produced the animated drama "Shura Wu Shen", which began broadcasting in Tencent on 23-09-26. On the first day of broadcasting, it won the hot search TOP7 in the station, the animation hit list TOP2, and the heat value exceeded 20000. In terms of comics, 17K Comics has launched 15 works, of which "National transfer" is worth more than 10 million; the company is using AI technology to adapt its IP into cartoons and distribute it to dozens of countries and regions around the world through MangaToon.

Profit forecast and investment rating: the company has rapidly promoted the short drama business and achieved a multi-market and multi-category layout; the AI+IP strategy has also been gradually landed, with rapid progress in the direction of large models and AI cartoons, which is expected to be gradually extended to animation and film and television business, and steadily promote the process of commercialization. We maintain the company's 23-25 return net profit of 1.3 billion yuan, the current share price corresponding to PE times 68-51-39, maintaining the "buy" rating.

Risk hint: industry competition aggravates risks, intellectual property protection risks, overseas business development risks.