Core views:

Production of leading copyright dramas is stable, and production capacity is expected to accelerate. Ling Meng is a scarce domestic content company that produces leading copyrighted dramas. It accounts for 70% of popular series, 40% of Douban's score of 7.5 points or more, and 50% of original screenplays. Every year in 2017-2023, at least one copyrighted drama ranked in the top 30 on the Internet. Therefore, the revenue and profit margin of individual episodes of Ning Meng's copyrighted dramas are at the leading level in the industry, achieving 100% pre-sale. The company's core competency stems from a structured 7-stage series development process. The 4 co-founders from SMG control key points from top to bottom to ensure that the project is completed within the planned quality, budget and schedule. The potential energy of IP is driving up production, and the company plans to launch 12-16 series projects in 2024.

Build a second growth curve around maximizing the IP value of the series. (1) Extend the content marketing radius of TV series IP, and innovate and upgrade full-link marketing products such as strategic brand customers and artist businesses. (2) Try overseas content production. The Thai version of “Just Thirty” was launched in Bangkok on 23H1. (3) Benefiting from the rapid growth of the global short drama market and the dividends of stricter domestic regulations, to build a leading short drama brand “good and competent”. The competitive advantage is the content creation system and investment promotion ability in collaboration with long dramas.

Profit forecasting and investment advice. We expect that in 2023-2025, the company will achieve operating income of 13.62/14.73/2,033 billion yuan and net profit of 227/3.20/445 million yuan to mother. Ning Meng is a scarce domestic leading content company with stable output and the ability to develop screenplays on its own. The distribution and price of copyrighted dramas are stable, and the systematic content development process and rich copyright project reserves have laid a solid foundation for the company to increase production capacity in the future. The company uses copyright drama IP as its core competitiveness to expand innovative businesses such as drama going overseas, short dramas, and content marketing, and open up a second growth curve in performance. According to the relative valuation method, the company was given a PE valuation of 10 times that of 2024, and the reasonable value of the corresponding company was HK$9.78 per share, which covered the “buy” rating for the first time.

Risk warning. Uncertainty about drama projects; lower sales prices for copyrighted dramas; reduced advertisers' budgets; short drama business falls short of expectations; changes in regulatory policies.