Introduction to this report:

The world's first AI feature film is about to be screened. The video model will increase the supply of film and television content, and companies with a strong downstream cinema advantage are expected to earn more box office revenue.

Key points of investment:

Film expectations drive the enthusiasm for watching movies to increase, and maintain the “gain” rating. The company has the largest share of the domestic film investment market and is far ahead of other film investment companies. Together with Ruyi, it is hoped to strengthen the production business and benefit from AI video models to reduce costs and increase efficiency. We keep the 2023-2025 EPS forecast of 0.55/0.69/0.81 yuan unchanged, and maintain the target price of 18.52 yuan.

Incident: According to the Financial Services Association, the world's first AI feature film “Our T2 Remake (Our T2 Remake)” will premiere in Los Angeles on March 6, 2024. AI may have a major impact on the film industry chain.

AI movies are expected to boost supply, with downstream cinemas benefiting the most. AI video models and AI-assisted workflows are expected to improve film production efficiency while reducing production costs. In particular, for special effects films and sci-fi movies that require high investment, output may increase with the aid of AI. Furthermore, the reduction in production costs makes it easier for films to recoup costs, and the filmmakers' willingness to schedule during unpopular periods will boost film supply and smooth the monthly box office. As a leading domestic cinema company, it will directly benefit from the increase in demand brought about by increased supply.

The production business is expected to be an important margin. Chen Xi (stage name Chen Zhixi), the new chairman of the company, is a producer and has served as the president of Ruyi Film and Television. Films involved in the production or production include “Hello, Li Huanying”, “Sending You a Little Red Flower”, “Walking Alone on the Moon”, and “Can't Stop the Annual Meeting”. The company has previously achieved outstanding results in the production business, producing the “Chinatown Detective” series, “Mistaken Murder” series, and the “Dragon Quest” series. It is expected that it will cooperate strongly with the new management team in terms of production, making it easier to achieve box office success under the advantages of industry chain integration.

Risk warning: Movie box office falls short of expectations, business collaboration falls short of expectations