2023 results fall short of our expectations
The company announced 2023 results: revenue of US$86.98 million, up 18.6% year on year; net profit of US$27.5 million, up 156% year on year; non-IFRS net profit of US$29.83 million, up 141% year on year. The company's performance fell short of our expectations, mainly because the number of systems installed was lower than expected.
Development trends
IMAX box office revenue recovered year-on-year in 2023, and the brand effect continued to extend to domestic films. The company's 2023 content solutions revenue was $25.52 million, up 71.2% year over year. According to the announcement and ARN, IMAX China's 2023 box office was US$298 million, an increase of 83.3% year over year, which is basically in line with the national box office growth rate of 83.4%. We believe that the company's box office revenue has clearly recovered year over year under the steady recovery of the film industry, and domestic IMAX films have performed relatively well, such as “Wandering Earth 2” and “Fengshen 1.” The brand effect continues to extend to domestic films, but the preference for imported films is still relatively weak, and the performance is relatively lackluster. Due to the increase in content solution revenue share (29.4% in 2023, up 9.1ppt year on year), the company's overall gross margin increased 8.3 ppt to 62.7% year on year, further strengthening its asset-light attributes.
The domestic cinema terminal is still recovering, and the company's system installation pace is relatively stable. The company's revenue from technology products and services in 2023 was US$60.9 million, up 4.5% year over year. In 2023, the company installed 13 new cinema systems (10 sets in 2022; 78 sets in 2019); a total of 26 new sets were installed, 13 were closed, and 2 units were transported, while the division and sales models were 12 sets (1 set of handling) and 14 sets (1 set of handling), respectively, without laser upgrades. At the end of 2023, the company had a total of 774 systems in Greater China. We believe that domestic cinemas are still recovering, and the pace of demand for new or upgraded high-end cinemas may slow down. It is recommended to pay attention to the subsequent industry's box office recovery progress and the demand for quality upgrades after cinema-side operating efficiency is improved.
The film reserve is rich. Pay attention to the schedule pace and box office performance of subsequent imported films. According to the announcement and Cat's Eye Pro, imported films to be screened in 2024 include “Dune 2” (scheduled for March 8 in mainland China), “Kung Fu Panda 4” (scheduled for March 22 in mainland China), “Godzilla vs. Kong 2: Rise of the Empire” (mainland China scheduled for March 29), “Rise of the Planet of the Planet” (scheduled for May 10 in North America), and “Deadpool 3” (scheduled for July 26 in North America). We judge that with the scheduled release of more imported films, the company's annual box office revenue may be flexible, and we will continue to pay attention to the pace of system installation and the box office performance of IMAX movies.
Profit forecasting and valuation
Considering the slowing pace of system installations, we lowered our 2024 and 2025 non-IFRS net profit forecast by 23.5%/22.1% to $3228/35.17 million. The current stock price corresponds to 10/9 times the 2024/2025 non-IFRS P/E. Maintaining an outperforming industry rating, taking into account profit forecast adjustments and abundant reserves for subsequent imported films, the target price was lowered by 7.2% to HK$7.7, corresponding to 11/10 times non-IFRS P/E in 2024/2025, with 4.2% upside compared to the current price.
risks
The number of film screenings and system installations was lower than expected, and the transaction volume was low, and the liquidity risk was low.