Core views
The company successfully reversed losses in '23, mainly benefiting from the growth in cinema business revenue and new IP business contributions. Looking ahead to 24 years, the three major businesses of IP+cinema+content investment are all expected to grow:
1) IP business: IP licensing has been accelerated. There are 13 projects in January-January this year. iNEW's new strategic plan is to break 10 billion GMV for cooperative products over the next 3 years. The game's licensing is flexible, and diverse gameplay, such as creative short films and co-branded packaging, is out of the market.
2) Cinema business: The annual box office is expected to be 58-60 billion yuan, and there is still room for growth in the box office revenue of film casting companies. SFC Film Management diversifies operations, explores the “cinema+” complex entertainment consumption format, and enhances performance.
3) Content investment: Rely on Shanghai Film Group's high-quality industrial resources to extend content investment business. Participated in the production of “China's Strange Tan 2” and the renewal of classic IPs such as “Scruffy King” and “Snow Kid” for 24 years, which is expected to contribute to flexible performance.
We expect net profit from mother to mother of 260 million and 320 million in 24-25, and the current PE valuation is 51.4x and 42.3x. Considering the company's unique layout on IP+AI and the scarcity of 60 national animation IPs, it is still actively recommended.
occurrences
The company issued a quick performance report. Revenue for the full year of '23 was 791 million yuan, up 114.77% year on year; net profit due to mother was 124 million yuan, which was lower than the forecast center; net profit without return to mother was 64 million yuan, which was lower than the forecast center.
Looking at the fourth quarter alone, revenue was 162 million yuan, up 93.70% year on year; net profit to mother was 540,000 yuan, up 99.69% year on year; net profit without return to mother was 2.27 million yuan, up 98.82% year on year.
Brief review
The company's revenue and profit improved significantly year over year in '23, mainly due to revenue growth in the cinema business and new IP business contributions.
1) Cinema business: The revenue growth rate of SFC film voting rooms is higher than the national market, and the effect of reducing costs and increasing efficiency is remarkable. In 2023, benefiting from high-quality supplies such as “Man Jianghong”, “Wandering Earth 2,” and “Give It All”, the total box office of national movies was 54.915 billion yuan (including service fees), an increase of 16.8% and 83.5% over the previous year.
According to the company's announcement, cinemas directly managed by the company achieved a total box office of 632 million yuan (including service fees) in '23, an increase of 19.87% and 129.71% over the previous year; the market share ratio was 1.17%, up 0.05 pct and 0.25pct from '21 and '22; the total number of viewers reached 12.2476 million, up 13.72% and 127.34% from '21 and '22. At the same time, on the one hand, the company drives the growth of pre-screening advertising and sales business through various initiatives such as the renewal and upgrading of the Shanghai Cinema, cross-industry cooperation, and membership marketing; on the other hand, it actively negotiates rent terms with property parties to effectively reduce the operating costs of cinemas and increase operating profits.
2) Large IP development business: IP popularity is high, and licensing services frequently exceed expectations. The company completed the acquisition and merger of 51% of Shangyingyuan's shares in May 2023 and entered the big IP development business. Shangyingyuan develops and operates around the entire IP industry chain, making steady efforts in the fields of product and marketing licensing, game linkage and licensing, and derivatives. According to Shangyingyuan, the IP licensing business had 73 cooperative projects throughout the year, and the total amount of GMV for IP authorized products exceeded 1 billion yuan. The partners included industry giants such as **** Dairy, Starbucks China, and JD. Among them, the IP-authorized game mode is good and flexible. In 2023, the IP-licensed mini-game model went through. The two IP-licensed mini-games of “Hulu Brothers” entered the top 30 best sellers, and were also linked with well-known app games such as “Shanhai Jinghua” and “Egg Boy Party”.
Looking ahead to 24 years, the three major businesses of IP+ cinema+content investment are all expected to grow, driving the company's revenue and profits to maintain a high growth rate.
1. IP business continues to expand, and IP licensing frequency exceeds expectations
IP business tracking: IP has a high popularity, and various forms of authorized business and gameplay. The company's many classic animation IPs appeared on the CCTV Spring Festival Gala program “We've Grown Up Watching Cartoons”, including Qi Tian Dasheng, Nana, and the Hulu Brothers, etc., showing that the film's IPs are highly popular and highly scalable in future monetization. According to statistics from the official account of Shangyingyuan, the company's IP licensing projects reached 13 from January to January this year, which have three major characteristics:
1) There are plenty of licensing targets, and game licensing is effective: out of 13 projects, 5 game projects, 8 non-game items such as food and drink. Game co-titles include NetEase's “Decisive Battle! “Ping An Jing” and “Super World” by Hikawa Network. Other licenses include Starbucks, Bright Mosleyan, etc.
2) Diverse gameplay: During the Spring Festival in '24, Shangying Yuan joined forces with **** Dairy's Mosleyan to launch diverse marketing gameplay, including creative short videos, co-branded packaging, Lunar New Year handmade goods, popular business district advertisements, red envelope covers, etc., which received a lot of attention.
3) Increased number of authorized IPs: In addition to the common “Haunting Tiangong” and “Huluwa” IPs, the “Nine Color Deer” IP and the NetEase role-playing mobile game “Light Encounter” started linking in January '24.
IP business goals: GMV for cooperative products is expected to exceed 10 billion dollars in the next 3 years. According to the new i NEW strategy announced by the company in February, IP cooperative products plan to enter 5 major fields, 30 industries, and 500+ brands over the next three years, and the GMV for cooperative products will exceed 10 billion yuan. Shanghai Film Company will focus on IP+ games, and will also independently develop IP native games in the future.
2. The theatrical line business benefited from the national market and the diversified operation of Shanghai Film Studio's theatrical line business benefited from year-round box office growth, and Shanghai Film and Cinema performed well during the Spring Festival. Looking at the general market of the industry, benefiting from large high-quality reserves from listed companies such as Light Media and Bona Pictures, and the release of imported films such as “Dune 2” and “Godzilla vs. King Kong 2,” the total box office is expected to be 58-60 billion yuan for the whole of '24, and there is still room for growth in the revenue of leading film investors. According to SFC Film Report, according to Shanghai Film, the box office of the Spring Festival SFC Shanghai Film Festival increased 4% year on year, and the number of movie viewers increased 17% year on year. Among them, the box office revenue of 20% of SFC Shanghai Film and Cinema stores increased by more than 15% year on year.
3. Group resources/business collaboration to continuously expand content business
Backed by Shanghai Film Group's high-quality industrial resources, the content investment business is expected to expand. The parent company of the company is Shanghai Film Group, which lays out the entire film and television industry chain and wholly owns high-quality film and television assets such as Shanghai Film Studio, Shanghai Art Film Studio, and Shanghai Film and Television Park. According to Shanghai Film's new strategy, AI has enabled film and television production to be accelerated since 24. Every year, more than 2 new IP content works are expected to continue the past three years, and the history of blockbusters one by one (China's Strange Tales, Flowers, Love Myths) is backed by the Group. Listed companies continue to gradually expand into the content business by participating in investment/production. According to Shanghai Film, “Hot and Hot”, which was co-produced by Shanghai Film during the Spring Festival in '24, achieved a box office of 2,724 billion yuan, ranking first; “When Bears Appear: Reversing Time and Space”, which was co-produced by Shanghai Film, achieved a box office of 1,392 billion yuan, ranking third. At the same time, the company has begun production of the second season of “China Qitan” and “The Summer of the Little Monster”, which is expected to reproduce the impressive performance of “China Qitan” with over 300 million broadcasts on Station B and a Douban rating of 8.7.
Investment advice: The company reversed losses in 2023, mainly benefiting from the growth in cinema business revenue and new IP business contributions. Looking ahead to 24 years, the three major IP+cinema+content investment businesses are all expected to grow: 1) the cinema business will benefit from the growth of the national market, and the share of the SFC film investment market will increase; 2) traditional IP licensing is accelerated and game licensing is flexible; 3) Backed by the Group's high-quality resources, content investment businesses such as “China Qitan 2” are expected to contribute to growth. We expect net profit from mother to be 260 million and 320 million in 24-25, and the current PE valuation is 51.4x and 42.3x. Considering the company's unique layout on IP+AI and the scarcity of 60 national animation IPs, it is still actively recommended.
Risk warning
Risk of not being screened as scheduled due to filming progress falling short of expectations, risk of films not being screened as scheduled, risk of not being introduced at the box office as expected, risk of resuming imported films, risk of script killing and competition from other offline entertainment activities, risk of content regulation, risk of film and TV drama infringement, risk of not developing generative AI technology as expected, risk of inadequate laws and regulations related to generative AI, risk of fraud caused by generative AI, risk of failure to develop game business as expected, risks affecting the health and safety of Internet content ecosystems, enterprises The risk of insufficient risk identification and management capabilities, and the risk of changes in the user's aesthetic orientation.