The company's recent situation

The company announced the “Action Plan on Promoting the Double Improvement of Quality and Return”. We believe that the announcement shows the company's confidence in both its main business and shareholder returns. The company adheres to the strategy of integrity and innovation and content is king, and its main business has developed healthily in recent years; moreover, since its listing, all other years except 2018, have implemented profit distribution in the form of cash dividends. The total amount of profit distributed in cash over the past three years is 718 million yuan, accounting for 41.51% of the average annual distributed profit achieved in the past three years.

reviews

Focus on creating cultural products and improving the content ecosystem. The company continues to consolidate the core advantages of long video content and promote the improvement of both “quality” and “quantity”. Among them, the N generation continues to launch and enhance the combination of content and new technologies such as AI, and has also made breakthroughs in new vertical tracks. The proportion of innovative programs is not less than 40%; increased investment in the film and TV drama business and focused on the development of leading series; and is also seeking expansion in short dramas and children's animations. The company said that Hunan TV and Mango TV plan to launch 140 variety shows in 2024, and reserve more than 80 TV series and 100 short dramas. We believe that the company is deeply involved in the Internet video business, and is expected to expand content monetization channels through Xiaomang e-commerce, offline concerts, reality research, artist brokerage, etc., to provide greater value and returns to users, partners, and investors in the medium to long term.

Continuously optimize the investor return mechanism to promote high-quality development. The company pays stable and sustainable cash dividends in accordance with the profit distribution policy stipulated in the articles of association and shareholder return plan. The company's articles of association stipulate that the dividend distributed in cash in a single year is not less than 10% of the distributable profit achieved in the current year, and the company's cumulative profit distributed in cash in the last three years is not less than 30% of the average annual distributable profit achieved in the last three years. We believe that the company values investor returns and takes into account the dynamic balance between performance growth and shareholder returns in an integrated manner according to the stage of development.

2024 is rich in content reserves, focusing on the potential for drama business development. According to the performance report, the company's membership revenue in 2023 also increased 10.2% to 4.315 billion yuan, and the number of active members reached 66.53 million at the end of 2023. We expect 2H23 ARPPU to increase month-on-month. The series “Our Interpreter” (January 8) and “On the River Day” (February 29) have already been released in 2024; follow-up suggestions include “With Fengxing” and “National Color Fanghua”. The company's advertising revenue fell 11.6% to 3,532 billion yuan in 2023, with a 16% increase in the same quarter, which picked up somewhat. However, at present, advertisers are still cautious about budget releases, and it is recommended to pay attention to the investment promotion performance of key variety shows such as variety shows “The Singer 2024” and “Ride the Wind 2024.” We believe that the market-based incentive mechanism, perfect studio system and continuous innovation ability are the company's competitive advantages, and it is recommended to focus on the pace and performance of the launch of its key content.

Profit forecasting and valuation

Keep the 2023/2024/2025 profit forecast unchanged. Maintaining an industry rating and target price of 31 yuan, corresponding 25/23 times 2024/2025 P/E, with 24.6% upside compared to the current price. The current price corresponds to 20.2/18.5 times 2024/2025 P/E.

risks

The recovery in advertising investment fell short of expectations, membership growth was slow, and content regulation was at risk.