Introduction to this report:

The company has a rich reserve of film and series projects. More than 30 films have been broadcast in the past two years, and it is expected to rank in the first tier of domestic content production; the forward-looking layout of live-action interactive movie games has already been prepared, and “Hidden True Detective” films are already in reserve.

Key points of investment:

It is hoped that the two Lunar New Year movies will increase their performance and maintain their “increase in holdings” ratings. The company has a rich content reserve. Nearly 40 films are scheduled to be screened in the next two years, covering content formats such as movies, series, games, and short and medium dramas. Films scheduled to be screened in 2023 are expected to hit the screens one after another in the Lunar New Year program, and the performance release point has been postponed to 2024. Based on this, we lowered our 2023 EPS forecast to 0.11 yuan (previous value was 0.36 yuan), kept the 2024/2025 EPS forecast unchanged at 0.49/0.61 yuan, maintained the target price of 10.80 yuan, and maintained the “increase in holdings” rating.

Event: The company released its 2023 three-quarter report. In a single quarter, it achieved operating income of 68.58 million yuan (up 33% year on year) and net profit of 4.54 million yuan (turning loss into profit from previous year); achieved operating income of 184 million yuan (down 13% year on year) in the first three quarters, and realized net profit of 32 million yuan (year-on-year increase in loss).

The performance fell short of expectations, and the reserve film is yet to be screened. The films that the company is expected to screen in the next two years include “Hot Searches” (scheduled 2023/12/1), “Heroes of Dunhuang” (scheduled 2023/12/22), “Great Future”, and “Lion Boy 2” and more than ten projects. Since no films were screened until December, the company's film business has yet to release results. Also, for films screened in the Lunar New Year program, confirmation of the results of most of them may be delayed until 2024, and their contribution to 2023's performance is limited.

Live-action video games have risen to prominence, and the company has already prepared projects. Recently, the short drama industry has continued to be popular, and the live-action interactive movie games derived from this have received a high level of attention. The company already has the “Hidden Detective” project in reserve and has a first-mover advantage in the field of live-action interactive video games. Also, based on years of experience in drama production, it is expected to open up new performance growth points on the new track.

Risk warning: Movie box office falls short of expectations, series payouts are slow, etc.