The short drama market at home and abroad is developing rapidly. At the same time, domestic supervision of micro-dramas has been strengthened, and the major platforms on Douyin and Kuaishou have also raised the qualification threshold for the introduction of short dramas. Poly's mixed reform film and television subsidiary lays out a short drama circuit, and has already completed the filming of a number of short dramas, which has a compliance advantage; the company's cross-border e-commerce is progressing smoothly, developing new brands and categories. Maintain the buy rating.
Key points to support ratings
The short drama market at home and abroad is developing rapidly, and domestic content requirements are becoming more stringent. The size of the online short drama market in China is on a rapid upward trend. According to data from Ai Media Consulting, the size of the short drama market in China (payment, advertising and other derivative revenue) will reach 37.39 billion yuan in 2023, +268% over the same period; the market size is expected to reach 10.68 billion yuan in 2027. However, at the same time, the state has strengthened its supervision of vulgar short dramas. On November 15, 2023, the State Administration of Radio, Film, and Television began a one-month period of special rectification work on online mini-dramas; Douyin and Kuaishou platforms have also raised the qualification threshold for the introduction of short dramas. In comparison, censorship of overseas content has been relaxed, and competition for distribution has been relaxed, so domestic short drama companies are actively deploying overseas. Many short drama apps such as ReelShort, a subsidiary of the online content platform Chinese Online, MiniEpisode of the social networking platform Akiko City, and Kyushu Culture's 99TV and ShortTV, have been launched overseas.
Poly's mixed reform film and television subsidiary lays out a short drama circuit, which has a compliance advantage. After the equity restructuring between Happy Group and the central enterprise Poly Film Investment, Happy Entertainment Group established a subsidiary, Beijing Lexiang Huayue Culture Technology Co., Ltd., which mainly develops film and television investment, MCN and other businesses, and cultivates its own traffic for marketing and monetization. Recently, Enjoying Huayue has completed the filming of a number of short dramas, which have so far covered various genres such as costumes, exploration, and sweet pets. In terms of compliance, in addition to the central enterprise Poly as a shareholder, Happy Huayue holds a value-added telecommunications business license. The licensing projects include online culture management, radio and television program production and management, and are in line with the restrictions imposed by short video platforms on streaming entities.
Cross-border e-commerce revenue increased dramatically in the first half of the year, opening up new brands and categories. The company's 23H1 cross-border e-commerce sales revenue reached HK$1,944 billion, +90.4% year-on-year; stimulated by more e-commerce promotions, GMV in the second half of the year will generally far exceed that of the first half of the year. We expect the annual cross-border e-commerce GMV to reach 700 million US dollars. In the first half of the year, the company successfully expanded new well-known consumer electronics suppliers, and local cooperative distributors in Southeast Asia grew rapidly, up 82.99% from the end of 2022. The MARTOP platform has begun to expand sales in non-mobile categories such as tablets and seize more market share. The company officially launched TikTok e-commerce business in 21Q4. The main market is in Southeast Asia. The region has been China's largest trading partner for three consecutive years since 2020. Per capita income has grown rapidly, and there is broad scope for short video e-commerce development.
valuations
The company's overseas e-commerce business expanded smoothly into the market, and it is expected that gross margin will continue to increase with the diversification of categories; film and television subsidiaries are actively laying out new tracks with potential. We expect net profit for 2023/24/25 to be HK$4.39/-2.45/96 million, corresponding to PE7.78 times 2025. Maintain the buy rating.
The main risks faced by ratings
Southeast Asia's economic growth is slowing down; overseas e-commerce policy risks; increased competition; film and television investment project risks.