Non-IFRS net profit for 2023 is largely in line with our expectations
The company announced its 2023 results: The company achieved revenue of 7.012 billion yuan in 2023, a year-on-year decrease of 8%; non-IFRS net profit of 1,130 billion yuan, a year-on-year decrease of 16.2%, which is basically in line with market (1,116 billion yuan) and our (1,115 billion yuan) expectations.
Development trends
The online business continues to optimize content distribution, and the copyright operation business fluctuates depending on the pace of episode confirmation. Online business: Online business revenue in 2023 was 3,948 billion yuan, down 9.5% from the same period. As for its flagship product, Click to Read, revenue in 2023 increased by about 40%. In 2023, the company optimized product distribution channels on its own platform, distributed more content to paid reading products and optimized Tencent product distribution channels. The year-on-year decline in advertising revenue. Due to distribution optimization and control of marketing expenses, the online business MAU also fell to 206 million people in 2023; due to effective anti-piracy and increased operational capacity, the number of paying users of its own platform products and self-operated channels also increased by 10% to 8.7 million. We believe that the company's online business focuses on incubating quality products, and revenue from its own and proprietary platforms may stabilize month-on-month based on 2H23 in 2024. Copyright operation business: In addition to Shinih Media, revenue from copyright operations increased 10.1% to 1.803 billion yuan in 2023; due to fluctuations in the pace of series confirmation, Shinih Media's revenue in 2023 was 1,250 million yuan and profit of 487 million yuan, all of which declined year-on-year.
Gross margin declined slightly year over year, and overall operating efficiency was steady. Considering the company's increased investment in high-quality content and the increase in revenue from animation projects, the gross profit margin in 2023 was 48.1%, down 4.7ppt. Among them, the gross margin of copyright operations and other businesses also decreased by 11.8ppt to 45.9%. In 2023, the sales expense ratio was 24.5%, down 1.8ppt; the management expense ratio was 16.6%, up 0.4ppt year over year.
2024 is rich in reserves of key content, and the copyright operation business has broad scope for development. Looking ahead to 2024, Shinih Media has launched or screened the series “With Fengxing” (broadcast on March 18), and the main sponsor of the film “Hot and Hot” had a box office of over 3.4 billion yuan as of March 18 (according to Cat Eye Professional Edition); the upcoming dramas “Celebrating the Years 2”, “The Story of Roses”, “Dafeng Strikes More People”, “Fighting Drug Storms”, and “Dumb House”. The company performance conference mentioned that Xinli Media's net profit in 2024 is expected to reach or exceed 500 million yuan per year in the future. 1 to 2 projects, and enhance series development of episodes. The company's IP “Doulo Continent”, “Battle the Sky”, and “Daily Life in Chat Groups” have obtained versions; the company's self-operated game “New Doulo Continent” plans to be optimized and upgraded in 2024. The company's performance conference mentioned that in 2024, it plans to optimize the smart pen model, launch a classic IP image to interact with users on the Chikumejima App, and also plan to explore AI application opportunities with multiple modes of IP. We recommend focusing on the long-term development space brought about by the monetization of the entire IP industry chain with the support of new AI technology, etc.
Profit forecasting and valuation
Due to online business optimization, 24/25 revenue was lowered by 3.6%/3.3% to $78.385 billion. The non-IFRS net profit forecast remained unchanged, taking into account revenue, expenses and other revenue adjustments. The current price corresponds to 16.6/14.3 times 24/25 non-IFRS P/E. Maintaining an outperforming industry rating and target price of HK$36, corresponding to 22/19 times non-IFRS P/E in 24/25, with 31.6% upside.
risks
Content regulation was tightened; the growth of online reading users and revenue from IP operations fell short of expectations.