Incidents:
On October 30, the company announced the 2023 three-quarter report, 2023Q3 revenue of 257 million yuan (YOY +132.10%), net profit of 59 million yuan (YOY +679.42%), net profit of 59 million yuan (YOY +679.42%), and net profit of 43 million yuan (YOY +2008.95%) after deducting non-return net profit of 43 million yuan (YOY +2008.95%).
Key points of investment:
2023Q3 performance is in line with expectations, and profitability is significantly higher than before the pandemic:
(1) 2023Q3 had revenue of 257 million yuan (YOY +132.10%, QOQ +32.43%), net profit of 59 million yuan (YOY +679.42%, QOQ +96.49%), net profit after deducting non-return net profit of 43 million yuan (YOY +2008.95%). Non-recurring profit and loss were mainly non-current asset disposal gains and losses, government subsidies, and receivable/contract asset impairment preparations for return. The strong recovery in 2023Q3 performance was mainly due to the strong recovery of the movie market, which led to a sharp increase in the company's cinema business performance.
(2) 2023Q3 has a gross profit margin of 26.85% and a net profit margin of 25.76%, up 11.73/6.11pct from 2019Q3 and 1.40/6.88pct from Q2, respectively. The expense ratio for the 2023Q3 period was 7.77% (2019Q3 was 6.75%), of which the sales/management expense ratio was 1.42%/6.62%, a change of +0.17/- 1.27pct from 2019Q3.
The strong recovery of the movie market led to an increase in the company's box office and non-ticket business performance:
(1) The 2023Q1-Q3 domestic movie box office was 45.57 billion yuan (including service fees), recovering to 94.7% of the same period in 2019; the 2023 summer box office was 20.62 billion yuan, a record high (17.78 billion yuan in 2019); and the 2023Q3 box office exceeded 19 billion yuan (2019Q3 was 16.8 billion yuan).
(2) Continuously optimize the operation of cinemas. As of the end of 2023Q3, the number of cinemas/screens directly managed by the company was 51/375, respectively, an increase of 1 house/7 blocks from the end of 2023H1, and a decrease of 3 house/17 from the end of 2021. Cinemas directly managed by the 2023Q3 company achieved box office of 220 million yuan, an increase of 5.69% over 2019Q3. According to Cat's Eye, the company's 2023Q3 film projection market share was 1.13% (up 0.01pcT from 2019Q3).
(3) A number of films, such as “Saving the Suspect,” “The Tip of the Knife,” and “Mr. Red Carpet,” are scheduled for Q4, and the company continues to implement the “Cinema+” strategy, which is optimistic about the growth in the company's cinema box office and non-ticket business performance throughout the year.
Continue to develop big IP and build the “Shang Yingyuan Product” cultural and creative brand:
Under its subsidiary Cinema Culture, it has the right to operate 60+ well-known IPs such as “China's Qitan” and “The Hulu Brothers,” and “China's Qitan 2” and the animated film “Little Monster's Summer” are in preparation. Promoting IP licensing cooperation from multiple angles, developing product licensing cooperation with McDonald's, etc., and collaborating on content and gameplay with game companies such as NetEase. Using the “Little Monster's Summer” IP, JD and JD launched major JD movies and IP-only derivatives during the “618” promotion period, with over 230 million online impressions.
IP and AIGC technology empowers diverse offline business formats, and the “Digital Intelligence Man” product “Nacha Phantom SHO” appeared at Shanghai Cinema during the National Day. Build the “Shanghai Film Yuanpin” cultural and creative brand, and develop and design cultural and creative gift box products for “Shanghai Gifts” for the first time.
Profit forecasting and investment ratings: The company has formed a complete film distribution and screening industry chain of “specialized distribution company+comprehensive cinema+high-end cinema management”. The recovery of the box office is expected to bring about increased profitability. After acquiring an IP operator, new business is laid out, and the big IP development strategy is expected to open up a second growth space. Based on a prudent forecast of the new business layout, we adjusted the company's profit forecast. It is estimated that the company's net profit from 2023-2025 will be 1.55/2.17/320 million yuan respectively, corresponding to EPS of 0.34/0.48/0.71 yuan/share, and PE is 52.97/37.71/25.56X, maintaining the “buy” rating.
Risk warning: risks such as technology development/application practice/IP operation development falling short of expectations, box office recovery falling short of expectations, AI ethical risks, increased competition, brain drain, core talent team recruitment falling short of expectations, offline consumer demand falling short of expectations, repeated epidemics, quality of derivatives, and declining valuation centers.