Net profit for 2023 is expected to be 88,000-930,000 yuan, a significant increase over the previous year

The company released a positive profit forecast for 2023 and is expected to release results in mid-late March. The company expects revenue for 2023 to be 4.7 to 4.8 billion yuan, up about 102.6% to 106.9% year on year; net profit to mother is 8.8 to 9.3 billion yuan, a significant increase over the previous year. The performance forecast exceeds our and market expectations, mainly due to the good performance of Lunar New Year movies, proper management cost control, and adjustment of predicted income tax rates.

Key points of interest

The movie ticketing business recovered along with the steady recovery of the industry, and revenue from the performance industry may have increased significantly. Movie ticketing: According to Yien, the national box office in 2023 was 54.9 billion yuan, up 83.4% from the same period, recovering to 85.6% in 2019; according to the Cat's Eye Professional Edition, the national online sales volume in 2023 was 1,129 million, an increase of 83.9%, recovering to 78% in 2019, with an overall steady recovery. Performance ticketing: According to data from the China Performance Industry Association, the total number of spectators in the first three quarters of 2023 reached 111 million, surpassing the total number of spectators in 2019. According to the announcement, the company's performance ticket revenue and GMV both reached record highs in the same period in 2023, and progress was made in the large-scale performance event category. We judge that the company's movie ticketing business has recovered steadily with the recovery of the industry; under strong supply and demand in the offline performance industry, the company's related revenue may have increased significantly. Overall, we expect online entertainment ticketing revenue to increase 115% to 2.3 billion yuan in 2023.

The content business performed well in 2023, and distribution capabilities continue to be verified. According to the company's announcement, the number of films and box office share that participated in the promotion in 2023 reached a record high. Among them, the Spring Festival film “Man Jiang Hong”, which was mainly distributed and produced, grossed more than 4.5 billion yuan; the summer film “Fengshen Part 1: Morning Song Fengyun” grossed more than 2.6 billion yuan, and “In the Octagonal Cage” grossed more than 2.2 billion yuan. As of February 22, the Lunar New Year “Can't Stop the Annual Meeting” had grossed over 1.29 billion yuan, according to the Maw Eye Pro edition. We expect revenue from entertainment content services to increase 104% to $2.27 billion in 2023.

The 2024 Spring Festival edition “Flying Fast Life 2” won second place in the box office. Follow the performance of subsequent participating films.

According to the Cat's Eye Pro Edition, as of February 22, the 2024 Spring Festival program, “Flying Spur Life 2”, which was distributed and produced by the company, had grossed more than 2.8 billion yuan, ranking second in the Spring Festival box office; the company also participated in the production of “Bears Incurred: Reversing Time and Space” and “Hot and Hot”. Looking ahead to the future, the company's reserve films include “Spending Money at the End”, “Fire Thief”, “Rebirth”, “Child of Time”, and “Umbrella Girl.” It is recommended to continue to pay attention to the schedule pace and box office performance of subsequent films.

Profit forecasting and valuation

Considering Lunar New Year's film performance and management cost control and adjusting the forecast income tax rate, we raised our 2023/2024/2025 net profit forecast by 23.7%/9.8%/10.4% to $9.93/1,126 million yuan. The current price corresponds to 8.5/7.2 times P/E for 2024/2025. Maintain the outperforming industry rating, taking into account the increase in profit forecasts and the downward shift in the industry valuation center, and maintain the target price of HK$12, corresponding to 12.3/10.4 times P/E in 2024/2025, with 44.4% upward space.

risks

The general box office fell short of expectations, the pace of release of key content and box office performance fell short of expectations, and competition intensified.