2023 results are in line with market expectations

The company announced its 2023 results: operating income of 2,349 million yuan, up 64.6% year on year; net profit to mother of 166 million yuan, turning a loss into profit from the previous year, falling into the estimated range of 135-180 million yuan; net profit after deducting non-return to mother of 73.82 million yuan, turning a year-on-year loss into a profit range of 57-77 million yuan, which is in line with market expectations.

Development trends

The performance recovered with the recovery of the industry, and the market share was relatively stable. The company's box office revenue in 2023 was 2,085 billion yuan, up 81.3%. Among them, asset-linked cinemas had box office sales of 1,805 billion yuan, an increase of 81.96%, accounting for 3.62% of the market, down 0.02ppt from the previous year, ranking second. As of the end of 2023, the company had a total of 514 cinemas that had opened, with 3,225 screens, including 432 asset-based cinemas and 2,757 screens; 23 new cinemas were opened and 6 cinemas were shut down in 2023. We believe that the company's advantages in terms of operating efficiency and brand effect are still stable, and there is room for improvement in medium- to long-term market share.

Market recovery has brought about gross profit recovery, improving quality and efficiency to help improve profitability. The company's gross margin in 2023 was 14%, reversing losses year over year. The sales management expense ratio remains low and relatively moderate. We believe that the company continues to be deeply involved in controlling operating costs and other expenses. With the implementation of quality improvement strategies such as rent reduction and fee reduction, revenue growth and cost savings, etc., operational efficiency has improved. According to Yien data, from January to February 2024, the company's film investment volume included service fees of 488 million yuan, an increase of 2.5% over the previous year. The average market share was 3.7%, which was basically the same as the previous year. We believe that the film industry is expected to develop steadily in 2024, and the company's cinema business is expected to be accompanied by general market improvements, and business conditions may pick up further.

Expand innovative non-ticketing business and extend the value of the industrial chain by building your own brand. In 2023, the company improved the quality of products sold and innovated sales methods. The independent water bar business under its own brand “Hengdian Taste” progressed steadily. At the same time, the company is also actively exploring the development of products derived from film and television. We believe that the launch of high value-added products and innovative business forms is expected to further broaden commercialization space.

Profit forecasting and valuation

Maintain the 2024/2025 net profit forecast unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 28.0/25.5 times. Maintaining a neutral rating and target price of 15.8 yuan, corresponding to 29.0/26.4 times the 2024/2025 price-earnings ratio, there is 3.4% upside compared to the current stock price.

risks

The industry's box office performance fell short of expectations, market share growth fell short of expectations, box office uncertainty on key points, and competition in the cinema industry intensified.