Introduction to this report:
Both supply and demand sides of the film market have recovered markedly, and the company is expected to show strong elasticity as a regional leader in Shanghai; new big IP businesses are being actively promoted, and the company has abundant national IP reserves, and has explosive potential based on the development of the Japanese and North American markets.
Key points of investment:
The regional film leader in Shanghai has deepened its main business and expanded its new IP business. For the first time, it has been given an “increase in holdings” rating. The company's main film business has outstanding regional advantages. It is hoped that it will show strong elasticity as the movie market recovers. The new big IP business has explosive potential for targeting overseas markets. We forecast EPS for 2023-2025 to be 0.35/0.63/0.82 yuan, with a year-on-year growth rate of 147.3%/79.1%/29%, respectively. Referring to the valuation of comparable companies, we gave a target price of 30.39 yuan, covering the “increased holdings” rating for the first time.
Both supply and demand sides of the film market have been significantly restored, and the company is expected to show strong elasticity by relying on regional advantages.
According to Cat's Eye Professional Edition data, the country's total box office reached 49.2 billion yuan in the first 10 months of 2023, an increase of 77.1% over the previous year, and recovered to 94% in the same period in 2019. Looking at the subregion, Shanghai is the city with the highest box office in China. The company has maintained a leading position in cinemas in Shanghai. It has continuously optimized the quality of cinema assets during the pandemic. Operating efficiency indicators such as single-screen box office revenue are far higher than those of peers.
Taking Japan and North America as a guide, there is broad room for growth in the domestic IP licensing market. According to data from the “2022 White Paper on the Development of China's Brand Licensing Industry”, retail sales of IP licensing products in China reached 137.4 billion yuan in 2021, an increase of 24.2% over the previous year. Currently, Japanese and North American animation IP products have become important spiritual products for the public, compared to the broad space of the domestic IP licensing market.
The company has abundant national IP reserves, and IP licensing cooperation is progressing smoothly. The company completed the acquisition of 51% of Shanghai Film Culture's shares in May. Shanghai Film Culture has 30 exclusive IP operation rights, including “Big Cuckoo” and “The Hulu Brothers,” and 30 non-exclusive IP operation rights, including “China Qitan,” and has successfully promoted cooperation in commercialization licensing, game linking, and marketing licensing. Looking at overseas IP leaders Sanrio and Disney, Shanghai Film Culture has excellent IP quality and user base, and has a clear path of IP derivative development.
Risk warning: IP commercialization falls short of expectations, movie box office falls short of expectations, etc.