The Zhitong Finance App learned that Tianfeng Securities released a research report stating that it maintains the “buy” rating of Reading Wen Group (00772) and predicts 2023e-2025 ENON-IFRS net profit of 10.6/12.6/1.53 billion yuan, respectively (previous value of 13.8/16.2/1.94 billion yuan). The bank believes that the Group, as a leader in digital reading, uses the online reading business as the cornerstone to comprehensively promote the operation of the entire IP industry chain. The company's 2023 performance is under pressure in the short term. 2024 is expected to fully benefit from the acceleration of content-side supply, and it is expected to grow into the world's top cultural industry group based on the IP ecosystem in the long term.

Tianfeng Securities's main views are as follows:

FY23 preview: AI layout and repertoire launch delayed or put pressure on revenue

The bank estimates that FY23 Reading Group's revenue will be 6.9 billion yuan, yoy -9%; non-IFRS net profit will be 1.06 billion yuan, yoy -21%, mainly due to the postponement of “With Fengxing” and the impact of AI investment. “With the Phoenix”, starring Zhao Liying and Lin Gengxin, is an IP adaptation of a costume novel. It will premiere on CCTV, Jiangsu TV, and Tencent Video. Currently, the number of subscribers on the Tencent video platform exceeds 4.7 million. In July 2023, Reading Text released the industry's first big model “Reading Pen” and the application-side product “Writer's Assistant Wonderful Pen Edition” based on it. It mainly serves writers' creative assistance, operational data, etc., and AI invests or drives the improvement of writers' creative efficiency.

FY24: Focus on key repertoire and film developments

The bank believes that Reading Group may have several key repertoire worth paying attention to in 2024:

1) Movie: Follow the performance of “Hot and Hot”. “Hot and Hot”, produced by Shiny Media and directed by Jia Ling, was officially announced to be screened on the first day of the Spring Festival (February 10). According to the Cat Eye Pro App, the box office is estimated to be around 3.7 billion dollars as of February 11. Previously, Shinih Media had produced 40 films, with a total box office gross of over 36 billion yuan, and 12 movies grossed over 1 billion yuan, including “Hello Li Huanying” grossed 5.41 billion; “The Richest Man in Xihong City” had a total box office of 2.55 billion; “This Killer Is Not Too Calm” had a total box office of 2.63 billion yuan;

2) Repertoire: Multiple major dramas may be screened in 2024. “Celebrating the Years 2” is written by Wang Juo, directed by Sun Hao, and starring Zhang Ruoyun. The previous work “Celebrating the Past Years” is an early work by the platinum writer Cat Puty of Reading Group. It has also become a masterpiece, and has reached 9.3 billion views on Tencent Video. As of February 11, the number of reservations for “Celebrating the Years 2” has surpassed 10 million, and the popularity is rising. Over 2 million pre-orders have been made for “Dabong Dafeng Gengen”. “Dabong Dabong Gengen” is a costume drama that takes you through the growth of heroes. It is the “most anticipated IP adaptation of the year” in the 2023 World Chinese Language IP Festival. Reading Group's 24 year old puppet IPs have attracted a lot of attention, or kicked off 24 hits. There were over 4.7 million pre-orders for “With the Phoenix”, and over 3 million for “The Fox Demon: Little Red Moon”.

The acquisition of Tencent Animation is expected to enrich IP reserves and improve IP monetization efficiency.

On December 11, Reading Paper issued an announcement announcing the acquisition of Tencent Animation, including the Tencent Animation App Platform, intellectual property rights and related patents for its works, and animation, film and television projects, etc., and plans to pay 600 million yuan in cash. About 50% of Tencent Animation's top 30 best-selling works come from reading, which incubates several leading IPs, including “Under One Man”, “The Fox Demon's Little Matchmaker”, and “The King Raves His Life.” This transaction can enrich the upstream IP reserves of reading literature, supplement animation production capacity while consolidating the foundation for cooperative production lines in novel comic book reform, and is expected to bring new impetus to the growth of the literature reading business. Through this acquisition, Reading Text Group is expected to improve the animation IP upstream and downstream link system and improve IP visualization and monetization efficiency.