3Q23 performance is basically in line with our expectations.
The company announced 1~3Q23 results: revenue of 1.464 billion yuan, basically the same as the same period last year; net profit of 327 million yuan, an increase of 8.7%; and net profit of 257 million yuan, an increase of 6.1%. Of this total, 3Q22 income was 328 million yuan, up 18.0% over the same period last year; net profit from home was 87 million yuan, up 42.1% from the same period last year; and net profit from non-return was 64 million yuan, up 62.2% from the same period last year, which is basically in line with our expectations.
Trend of development
The number of new 3Q23 series in the industry has increased, and the company as a whole has been operating steadily. Series business: according to Yunhe data, there are 119 new domestic dramas in the 3Q23 industry as a whole, an increase of 18 over the same period last year. We believe that under the trend of normalized content, the online rhythm of the series is relatively stable, in which Huatze Film and Television 3Q23 broadcast the first round of the series "Chaoyang all the way" (August 14); according to the announcement, its film and TV drama project 3Q23 starts 3 (including 1 platform customized short play), kills 3 films, and broadcasts 3. Film business: according to Cat's Eye Professional Edition, the company's film Burning Winter, released on August 22, grossed 26.08 million yuan as of October 23, while the company's "ex 4: early Marriage" was released on September 28 (National Day). As of October 23, the cumulative box office exceeded 900 million yuan. We expect to participate in the film or contribute a certain increase in revenue at 4Q23.
The gross profit margin fluctuates to a certain extent and the operating expenses are properly controlled. 3Q23's gross profit margin was 39.0%, down 4.9ppt from the same period last year and 17.0ppt from the previous month. We expect it to be due to the company's lack of project confirmation and small project volume in the third quarter. The 3Q23 company's sales and management expense rates were 11.6% and 12.0% respectively, down 6.6ppt and 1.8 ppt, respectively, compared with the same period last year; and the R & D expense rate was 2.2%, increasing 0.6ppt over the same period last year. We believe that the increase in 3Q22 R & D fees is mainly due to the company's increased investment in new technologies.
Follow-up show list reserve is rich, pay attention to copyright and other new business progress. TV series: "Cheng Huan Ji" was killed on September 23, and the follow-up reserves include "I am a criminal policeman", "our translator", "Please fall in love with me like this", "Beautiful Peace" (killed on August 20), "Seven Nights Snow", "Beautiful Heart like a Dream" and so on. Movie: the company's master "misjudgment" is scheduled to start in October 2023. New technology and new business: 3Q23 has completed the merger of Mori Movie and Television, which has been incorporated into the company's management system; the copyright base has been expanded to 50,000 hours. The "Film and Television script Intelligent Writing system" developed by the company's AIGC Application Research Institute was launched in September, which provides tools for "evaluation assistant" and "screenwriter assistant". We believe that the company's promotion of the deep combination of content and technology is expected to improve production efficiency and explore multiple realization opportunities under new technologies.
Profit forecast and valuation
Due to the uncertainty of the launch of the series, we cut net profits by 8.5% and 8.0% to 506 million yuan and 562 million yuan in 2023 and 2024. The current share price corresponds to the price-to-earnings ratio of 19.5 pound, 17.6 times 2023 pound, 2024. Maintain the outperform industry rating, due to the profit forecast downgrade, cut the target price by 8.2% to 6.7 yuan, corresponding to 250.23 times 2023 Universe 2024 P / E ratio, there is 29.1% upside space.
Risk
The progress of key projects has been slow, regulation has been tightened, new business has been promoted and the application of new technologies has fallen short of expectations.