FY23 preview: AI layout and repertoire launch delays or revenue pressure. We expect FY23 Reading Group's revenue to be 6.9 billion yuan, yoy -9%; non-IFRS net profit to mother will be 1.06 billion yuan, yoy -21%, mainly due to the delay in “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 people who have subscribed to 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 Assistant Masterbrush 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
We think Reading Group may have several key productions worth watching in 2024:1) Movies: Focus on 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” grossed 2.55 billion; “This Killer Was Not Too Calm” had a total box office of 2.63 billion; 2) Reproductions:
Several 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 Years” was an early work by the Platinum Writer Cat Puty of the Reading Group. It has also become a masterpiece, with 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 Daredevil” 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 IP Festival. Reading Text Group's 24 year old puppet IPs are getting a lot of attention, or kicking 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., with a plan of 600 million yuan in cash. About 50% of Tencent's top 30 best-selling anime works come from reading, and has incubated a number of 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 Wen Group is expected to improve the animation IP upstream and downstream link system and improve IP visualization and monetization efficiency.
Investment advice: We believe that Reading Group, as a leader in digital reading, takes the online reading business as the cornerstone and makes comprehensive efforts to operate the entire IP industry chain. The company's performance in 2023 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. We forecast 2023E-2025E non-IFRS net profit of $1,06/12.6/1.53 billion (previous value: $1,38/16.2/1.94 billion), maintaining the “buy” rating.
Risk warning: macroeconomic downturn, repeated epidemics, weak consumption; policy and regulatory risks; increased competition in the e-commerce industry; new business development falls short of expectations