The company released its report for the third quarter of 2023. 2023Q3 achieved operating income of 1,353 billion yuan, a year-on-year increase of 90.13%, a decrease of 4.15% over the previous year, net profit of 111 million yuan, a decrease of 38.03% over the previous year, turning a loss into a profit; after deducting net profit of 81.2010 million yuan, a decrease of 49.91% over the previous year, turning a loss into a profit from the previous year. The first three quarters of 2023 achieved operating income of 4.210 billion yuan, an increase of 88.65% over the previous year, net profit of 471 million yuan, an increase of 791 times over the previous year, and net profit of 404 million yuan after deducting non-return to the mother's net profit of 404 million yuan, turning a year-on-year loss into a profit.

Key points of investment:

The domestic film market maintained a high level of popularity in the third quarter. According to Lighthouse Professional Board data, the domestic film market grossed 19.311 billion yuan in 202311 billion yuan, an increase of 127.35% over the previous year, and an increase of 14.76% compared to Q3 in 2019. The box office for the first three quarters was 45.600 billion yuan, up 77.61% year on year, down 5.31% from 2019.

Stable operation of all business segments. Creative sector: The company dominated or participated in the production and marketing of 28 films in the first three quarters, achieving a cumulative box office of 23.102 billion yuan, accounting for 61.44% of the total box office of domestic films in the country during the same period, an increase of about 4.63 pct over the same period. Distribution sector: Dominated or participated in the distribution of 347 domestic films in the first three quarters, with a cumulative box office of 30.541 billion yuan, accounting for 88.24% of the total box office of domestic films during the same period, an increase of 8.27 pct over the same period, and the distribution of 78 imported films, with a cumulative box office of 4.786 billion yuan, accounting for 70.23% of the total box office of imported films during the same period, an increase of 10.63 pct over the same period. Screening sector: The company's participation in holding theaters and controlling cinemas covered 2,081 screens and 2,776,800 seats, an increase of 399 and 51,800, respectively, compared with mid-2023, of which the number of theaters and screens held decreased by 3 and 20, respectively.

Technology sector: In the first three quarters of 2023, Barco had sold 926 new sets of projectors, an increase of 367 sets over the previous year. 155 CINITY cinemas have been opened, an increase of 24 over mid-2023.

The gross margin reached the highest level in the same period of the previous year. The company's gross profit margin for the first three quarters of 2023 was 26.39%, reaching the highest level in the same period of the calendar year, up 7.53pct year on year, up 3.52pct from the same period in 2019; sales expenses/management expense rates/R&D expense ratios were 2.95%/8.15%/0.51%, down 1.43pct/6.06pct/0.41pct year on year, respectively, up +1.15pct/ +3.54pct/-0.05pct from the same period in 2019.

Investment recommendations and profit forecasts: The film industry performed well in the first three quarters. The box office showed a good recovery trend, and the box office gap with the same period in 2019 continued to narrow. However, due to factors such as the supply of content and the sharp increase in demand for going out during the holidays, the performance of the National Day program was weak, dragging down the overall box office in October. We lowered our profit forecast for the company. The 2023-2025 EPS is expected to be 0.31 yuan, 0.42 yuan, and 0.50. According to the closing price of 1 yuan on November 1, 2.0 to 1, the PE should be 38.59 times, 28.72 times, and 24.14 times, maintaining the “increase in holdings” rating.

Risk warning: The box office performance of the film market fell short of expectations; market competition intensified; the box office performance of the company participating in the project fell short of expectations