Core views

The release of reserves is gradually returning to normalization. Although as of the end of the third quarter of 2023, the release of the company's film reserves fell short of expectations, leading to a clear recovery in business conditions, two films have already begun to be filmed in the fourth quarter, and there are still many reserves yet to be released.

Follow the progress of the scheduling of blockbuster films in core dates such as the Spring Festival program. Films scheduled for the fourth quarter include the spy film “Sword Tip” starring Zhang Yi, and the spy film “Burst Point” directed by Lam Chiu-yin and starring Cheung Ka-fai and Chan Wai-ting. Reserve films include Han Han's comedy sequel “Flying Through Life 2”. The previous work was screened during the 2019 Spring Festival. Follow the progress of the sequel's scheduling, as well as the fantasy-themed action film “Legend,” starring Jackie Chan, and Gulinza.

The TV series layout is progressing steadily. In the fourth quarter, the major revolutionary-themed TV drama “Shangganling,” which commemorates the 70th anniversary of victory in the war against the US and aid Korea, will be hosted by the company. It is expected to be launched on Youku and CCTV by the end of the year.

occurrences

The company released its 2023 three-quarter report. In the first three quarters, the company achieved operating income of 1,321 million yuan (YoY -25.59%), net loss of 236 million yuan (YoY -377.22%), and net loss of 436 million yuan (YoY -3,294.22%) after deducting net loss of 436 million yuan (YoY -3,294.22%).

In the third quarter, the company achieved operating income of 472 million yuan (YoY +55.72%), net profit of 29 million yuan (+118.95%), net profit of net income of 29 million yuan (+118.95% year-on-year), and net profit after deducting net profit of 0.5 billion yuan (+103.62% year-on-year).

Brief review

The steady operation of the cinema business led to a recovery in the company's performance in the third quarter. We expect that the company's performance recovery in the third quarter was mainly driven by the cinema business. Demand for movie viewers and box office performance in the summer season exceeded expectations. Combined with the company's stable share of the box office market, the cinema business situation picked up significantly year-on-year. Looking at the cinema business, according to the Maoyan Professional App, Bona Film Investment achieved box office revenue of 394 million yuan in the third quarter of 2023, ranking 7th in the industry, 8th in the same period last year, with a box office market share of 2.04%, 2.02% in the same period last year, which is basically the same as the previous year; the number of movie viewers was 8.737 million, accounting for 1.87% of the total number of movie viewers; the average ticket price was 45.1 yuan, which is 9.20% higher than the industry average of 41.3 yuan. The main reason is that the company's cinema layout is centered on Tier 1 and 2 cities, and most shopping centers located in urban areas are higher.

Judging from the investment business, the release of films in the third quarter fell short of expectations. Looking at the first three quarters, the company began to gradually expand films other than the main theme, but the box office performance fell short of expectations. In the first half of the year, the company's main investment, “Don't Call Me a “Gambler,” and “When the Wind Rises Again”, the company's main investment, focused on family stories and crime themes, respectively. The box office grossed 47.83 million yuan and 49.044 million yuan, respectively. In the third quarter, although the overall national box office for the summer season recovered beyond expectations, the company did not invest in the screening of major films, so it did not benefit from the market recovery.

Focus on the progress of the release of reserve films. Currently, the company has scheduled 2 main projectors for the end of the year. They are the spy film “Sword Tip” starring Zhang Yi, scheduled for November 24, 2023, and the spy film “Burst Point” directed by Lam Chiu-yin, starring Cheung Ka-fai, and Chan Wai-ting, is scheduled for December 8, 2023. The main feature films of the reserve include the fantasy-themed action film “Legend” starring Jackie Chan, Zhang Yixing, and Gulinza, and the comedy sequel “Flying Through Life 2” directed by Han Han (the previous film grossed 1,728 billion yuan). In terms of TV dramas, the focus is on “Shangganling,” which is controlled by the company's main investors to commemorate the 70th anniversary of victory against the US and aid Korea. The drama will be broadcast on YouTube and CCTV, with a total of 24 episodes.

Financial analysis:

1) Gross profit margin in the third quarter benefited from a major recovery in the movie market, with significant year-on-year growth. In the first three quarters of 2023, the company's gross margin was 20.41%, a year-on-year decrease of 27.20pct, mainly due to the release of “Pratunam Bridge in Changjin Lake” in the first quarter of 2022, which drove the gross profit margin of the quarter to 59.23%; looking at the third quarter alone, the company's gross margin was 32.19%, an increase of 14.15 pct over the previous year. It is expected that cinema operations will pick up significantly year on year.

2) Expense rates during the third quarter also benefited from a general market recovery, with a significant year-on-year decline. In the first three quarters of 2023, the total period expense rate was 46.29%, up 4.32pct from the same period last year; in the third quarter, the total period expense rate was 26.85%, a year-on-year decrease of 40.51pct, of which the sales expense ratio was 1.50%, a year-on-year decrease of 10.45pct; the management expense ratio was 14.90%, a year-on-year decrease of 7.22pct; and the financial expense rate was 10.46%, a year-on-year decrease of 22.84pct.

Investment advice: The release of reserves is gradually returning to normalization. Although as of the end of the third quarter of 2023, the release of the company's film reserves fell short of expectations, leading to a clear recovery in business conditions, two films have already begun to be filmed in the fourth quarter, and there are still many reserves yet to be released.

Follow the progress of the scheduling of blockbuster films in core dates such as the Spring Festival program. Films scheduled for the fourth quarter include the spy film “Sword Tip” starring Zhang Yi, and the spy film “Burst Point” directed by Lam Chiu-yin and starring Cheung Ka-fai and Chan Wai-ting. Reserve films include Han Han's comedy sequel “Flying Through Life 2”. The previous work was screened during the 2019 Spring Festival. Follow the progress of the sequel's scheduling, as well as the fantasy-themed action film “Legend,” starring Jackie Chan, and Gulinza.

The TV series layout is progressing steadily. In the fourth quarter, the major revolutionary-themed TV drama “Shangganling,” which commemorates the 70th anniversary of victory in the war against the US and aid Korea, will be hosted by the company. It is expected to be launched on Youku and CCTV by the end of the year.

We expect the company's net profit from 2023-2024 to be 0.10/411 million yuan, an increase of 114.42%/3,857.89% over the previous year. The closing price corresponding to PE on October 30 is 933.37/23.58x.