Performance is picking up in 2023, optimistic that the release of high-quality content will drive the company's performance growth, and maintain the “buy” rating
In 2023, the company achieved total revenue of 7.023 billion yuan (-8.0% year over year), including online business revenue of 3,948 billion yuan (-9.5% year over year), mainly due to the company's optimization of distribution channels with low return on investment. Revenue from IP operations and other businesses was $3,064 billion (-6.1% YoY), mainly due to the company's launch of less video content in 2023 than in 2022. The company's gross margin was 48.1% (YoY -4.8pct), net profit margin was 11.5% (YoY +3.5pct), and net profit to mother was 805 million yuan (+32.3% YoY). The decline in gross margin was mainly due to the decline in gross margin of the copyright operation business, and the increase in net profit was mainly due to other beneficial changes. Based on the company's performance and product expectations, we lowered 2024-2025 and added a profit forecast for 2026. We forecast that the company's net profit for 2024-2026 will be 11.04/13.49/15.13 (the value before 2024-2025 was 13.84/16.36) billion yuan respectively, the corresponding EPS would be 1.1/1.3/1.5 yuan, and the PE corresponding to the current stock price would be 23.3/19.1/17.0 times, respectively. We are optimistic that the release of the company's large IP products will drive performance growth and maintain the “buy” evaluation grade.
In the context of channel optimization, the growth of paid users is impressive, and the user payment potential is expected to gradually unleash the company's own platform products and self-operated channel MAU of 205.6 million people in 2023 (-15.7% YoY), with an average monthly paying user base of 8.7 million (+10.1% YoY). Among them, monthly paying users of its own platform products increased by more than 20% year-on-year. The growth of paying users reflects positive developments such as fighting piracy, enhancing product operation capabilities, and exporting high-quality content. The average monthly revenue per paid content user in 2023 was 32.5 yuan (-14.0% YoY), mainly due to some newly converted paying users spending less in the early stages of their billing cycle.
We believe that as the company continues to export quality content, the user payment rate and payment scale are expected to continue to increase.
The company has rich reserves of high-quality film and television content. AI continues to enable the creative ecosystem and IP to monetize the 2024 Spring Festival. The box office for “Hot and Hot” produced by the company also includes the second season of “Celebrating the Years”, “Dabong Dabong Gengren”, “With Fengxing”, and “Rose Story”. Among them, the number of pre-orders for the second season of “Celebrating the Years” has exceeded 12 million, making it the first series with over 10 million bookings on the entire network. In December 2023, 21 works were translated by AI in the top 100 of the company's overseas reading platform WebNovel bestsellers.
We believe that the launch of the company's rich and high-quality content is expected to bring a considerable increase in performance. At the same time, AI is expected to reduce the cost and efficiency of content production and shorten the IP monetization path, and AI and overseas are expected to jointly open up space for the company's growth.
Risk warning: content industry policy changes, IP commercialization falling short of expectations, corresponding AI progress falling short of expectations, etc.