Incidents:
On March 18, the company announced its 2023 financial report, achieving revenue of 7.012 billion yuan (down 8% year on year), operating profit of 709 million yuan (up 13% year on year), net profit to mother of 805 million yuan (up 32% year on year), and non-IFRS net profit of 1,130 million yuan (down 16% year on year).
Our point of view:
1. Operating conditions: The overall average MAU of the platform in 2023 was 206 million (-15.7% YoY), and the number of paying users was 8.7 million (+10.1% YoY). Mainly due to positive progress in continuing to effectively combat piracy, enhance product operation capabilities, and continuously export high-quality content, the core payer group is stable.
2. Overall performance: The company achieved revenue of 7.012 billion yuan (-8.05%) in 2023. The company's online business revenue was affected by some channel optimization and the launch of some copyright adaptation projects was delayed. Overall performance was under pressure. Net profit from non-IFRS fell 16.16% year on year to 1,130 billion yuan.
3. Online business: Online business revenue in 2023 was 3.95 billion yuan, down 9.5% year on year. The average monthly paying users of its own platform products increased by more than 20% year on year. The core users of paid content and the supply-side advantage of content were stable, and the number of writers and works continued to grow; the “Writer's Assistant Wonderful Pen Edition” was released. Currently, the weekly usage rate of the AI function of the product has reached 30%, helping writers improve their creative efficiency.
4. Copyright operation and other business: In 2023, revenue from copyright operations and other businesses was 3.06 billion yuan, down 6.1% year-on-year, mainly affected by factors such as series schedules. Looking ahead to 2024, the company has plenty of reserves for various adaptation directions, and continues to promote the integration of AI technology with IP visualization and creative upgrading, which is expected to provide greater flexibility for this year's results.
Profit forecast and investment rating Considering the impact of the company's online business revenue on some channel optimization and the uncertainty of episode scheduling, we slightly lowered our revenue and profit forecasts. We expect FY2024-2026 revenue to be 75/77/80 billion yuan, respectively, adjusted net profit of 13.7/15.6/1.74 billion yuan, and corresponding PE (adjusted) of 17/15/14X, respectively. Considering the company's strong copyright business pipeline and stable online business advantage in 2024, SOTP valuation is carried out based on the profitability and competitive pattern of different business segments (with corresponding premiums/discounts). The total target market value for 2024 is 33.4 billion yuan, target prices of 33 yuan and 36 HKD, maintaining a “buy” rating.
Risks indicate the risk of slowing the growth rate of active users, the risk of rapid increase in channel costs, the risk of market competition, antitrust risk, industry valuation adjustment risk, drama approval risk, content supervision risk, etc.