Core views
Looking ahead to the 2023 performance, we expect Reading Group's revenue for the full year of 2023 to be 7 billion yuan (yoy -8%); adjusted net profit of 1.1 billion yuan (yoy -20%); short-term pressure on performance is mainly due to delays in some film and television projects, contraction of online business channels, and increased investment in AI costs. Looking ahead to 2024, the company has many potential catalysts: 1) More movies and TV dramas will be launched, including “Celebrating the Years 2” and “Dafeng Dabong: More People”; the movie “Hot and Hot” has already achieved good box office revenue; Xinli is expected to benefit as the main producer; 2) The acquisition and acquisition of IPs such as Tencent Animation, “Under One Person”, and “The Little Lady of the Fox Demon” are expected to further enrich the IP ecosystem of reading texts; Tencent Animation is expected to accelerate the company's IP incubation capacity; 3) The number of short drama products is expected to increase in 23-25./160 pcs.
Brief review
2023Y Performance Forecast:
We expect Reading Group's revenue to be 7 billion dollars (yoy -8%) for the full year of 2023. The decline in revenue is mainly due to the contraction of some channels in the online business and delays in the release of some Shinih's film and television projects; the net profit after adjustment is 1.1 billion yuan (yoy -18%); there is a sharp decline in profit, partly due to the decline in online and IP business revenue, and on the other hand, the cost increase due to the high investment in 23H2 AI.
The 2024 project reserves are abundant, and “Hot and Hot” has already achieved excellent box office revenue.
Looking ahead to 2024, the company's project reserves are relatively rich, and the quality may be better than last year. In terms of TV dramas, Shinih Reserve's projects such as “With the Phoenix,” “Celebrate the Years 2,” “Dafeng Fight People,” and “Rose Story” are expected to go online; in terms of movies, “Hot and Hot” will be screened during the Spring Festival. According to cat's eye data, as of February 19, the total box office of the film has reached around 3 billion. Shinih Media, as the main producer, will benefit from this.
There are many potential catalysts in 24:1) Acquisition of Tencent Animation: Read Wen announced in December that it would acquire Tencent Animation assets (APP platform+animation project+film and television project+90% shares in Mi Orange, 1.2 X PS) at a consideration price of 600 million yuan. We believe that Tencent Animation's acquisition is expected to further enrich the IP ecosystem for reading texts, including “Under One Person” and “The Fox Demon Little Matchmaker”; improving the ability to read animated comics, animation is expected to accelerate the increase in IP popularity. 2) Skits:
The company announced the “Short Drama Galaxy Incubation Program” in early December to accelerate the short drama business layout through cash and flow support. It is estimated that Reading Wen and Tencent will cooperate on 40/100/160 distribution cooperation projects in 23-25. 3) AI: The company added an AI model and released an AI writing assistant; at the same time, AI is expected to help translate novels overseas.
Profit forecast: We expect the company's revenue for 23-24 to be 7 billion and 7.6 billion, respectively, with year-on-year changes of -8% and 8.5%; adjusted net profit of 1.1 billion yuan and 1.5 billion yuan, respectively; and -20% and 37% year-on-year changes.
Risk warning: 1) The risk that the movie box office falls short of expectations, and the launch time and box office of subsequent movies will fall short of expectations; 2) the risk of TV dramas being delayed; 3) the risk of continuing contraction of online business channels, the risk of declining traffic on platforms such as Starting Point and QQ Reading, and the risk of increased competition from rival platforms such as QQ and Tomato; 4) The risk that IP licensing requirements fall short of expectations; 4) The risk that IP licensing requirements fall short of expectations; 5) There is a risk that the distribution of game IP traffic will fall short of expectations; 5) There is a risk that IP licensing requirements will fall short of expectations; 5) There is a risk that the distribution of game IP traffic will fall short of expectations; 5) There is a risk that IP licensing requirements will fall short of expectations; 5) There is a risk that the distribution of game IP traffic will fall short of expectations; 5) There is a risk that IP licensing requirements will fall short of expectations; 5) There is a risk that the distribution of game IP traffic will be delayed; 5) Revenue growth rate, Risk of the Group's adjusted net profit falling short of expectations; risk of subsequent cost increases.