Backed by Shanghai Film Group and the Shanghai State-owned Assets Administration Commission, Shanghai Film has a high-quality film industry chain, and has a good accumulation of film distribution, screening, marketing, and technical services. As the film industry continues to recover in the second half of the year, the company's film-related revenue is expected to grow. At the same time, the company is actively expanding its IP business, exploiting value and commercial transformation through various forms such as IP licensing, joint naming/linkage, and IP derivatives, and is expected to catch up with the rapid growth of the IP licensing business in China. The company actively implements the strategy of “quality content, big IP development, and digital transformation”. The basic market of the film industry is stable, and the IP business prospects are broad. Based on the above factors, the first coverage gave a “Highly Recommended” investment rating.
Operating scarce domestic art IPs, the ability to license and monetize is worth looking forward to. China's IP licensing market is growing rapidly. In 2021, IP licensing retail sales reached 137.4 billion yuan, up 24.2% year-on-year, and reached 139 billion yuan in 2022. Shanghai Film actively participated in the IP market layout and completed the acquisition of Shanghai Film Studio in May 2023.
Shangyingyuan is leading in terms of the number and quality of domestic IPs, and has remarkable commercial monetization capabilities. Successful cases include “China Qitan,” “Haunted Tiangong,” “The Hulu Brothers,” and “Black Cat Sergeant.” The IP copyright held by the company can be used to monetize IP by authorizing companies in the gaming, film, television, toy and other industries. In the future, the company will explore closer integration of IP with the main film and television industry and new technology. The development direction includes IP+ film and television productions, IP+ cultural tourism space, and IP+AIGC+MR.
Actively building the foundation for the entire film industry chain, the holding company Shanghai Film Group is strong. The predecessor of Shanghai Film completed the establishment of an online ticketing platform through multiple asset restructuring and cinema acquisitions, and built a complete film industry chain layout. Since the company went public, the box office has been in the top four in the country. Shanghai Film has been controlled by the state-owned Shanghai Film Group for a long time. The shareholding structure is stable and supports the company's long-term development. To this end, the company formulated and implemented a strategy of “quality content, big IP development, and digital transformation”. A high-quality film industry chain, stable state-owned holdings, and an active long-term strategy have injected strength into the company's development.
The overall box office recovery trend is obvious, and there is plenty of room for a rebound in Tier 1 and 2 cities. The total box office of the Chinese film industry declined from a high of 64.1 billion yuan in 2019 due to the impact of the COVID-19 pandemic, and it bottomed out in 2022. After the epidemic was brought under control in 2023, in terms of box office performance, the Spring Festival and summer programs surpassed the same period of 5 years. As of November, the total box office exceeded 50 billion yuan, an increase of 79.7% over the previous year, surpassing the full year level of 2022. Judging from the occupancy rate, the overall rise in Tier 1 and 2 cities still has a lot of room for rebound compared to the early years.
The recovery trend shown by the total box office of domestic films is expected to drive an increase in film revenue in Shanghai.
The company's box office increased dramatically in the third quarter, and the main film won the Ching Ming Festival historical box office title. In terms of film screenings, the company's Lianhe Cinemas showed an upward trend in attendance, number of movie viewers, and average ticket prices, and box office revenue increased dramatically as a result. The box office of Lianhe Cinema Line in the third quarter was 1,572 billion yuan, up 19.78% year on year. As of Q3 2023, the company's box office reached 3.72 billion yuan, up 104.28% year on year, ranking in the top three in the country. In terms of film distribution, the company's main distribution film “Wangdao” won the box office title for historical films during the Ching Ming Festival in the mainland. It was the first choice for party building study and movie viewing activities in the first half of the year. The company will also continue to participate in high-quality film distribution in the future.
The first coverage gave it a “Highly Recommended” rating. Considering the company's prominent market share advantage in the cinema market in first-tier cities and the rapid growth in the scale of the IP licensing business, we expect to achieve net profit of 1.40/2.40/297 million yuan in 2023/2024/2025, respectively. EPS for 2023-2025 is 0.31/0.54/0.66 yuan respectively, corresponding to the current stock price PE of 84/49/40 x, which is a “highly recommended” rating for the first time coverage.
Risk warning: Market competition increases risk, risk of online media competition, risk of insufficient supply of high-quality content, risk of recovery of accounts receivable and asset impairment, risk of housing rental maturity