Revenue from online reading platforms fell 7% year over year to 1.91 billion yuan. Paid reading revenue declined 4% year over year, mainly due to optimizing distribution channels with low return on investment, which was partially offset by growth in core products. 2H23 monthly paying subscribers (MPU) increased 12% year over year to 8.6 million, thanks to anti-piracy measures and high-quality content. Free reading revenue fell 32% year over year as the company strategically moved more content to paid reading products. Third-party channel revenue growth has stabilized to 1% year-on-year since 2H23.
Copyright operating revenue increased 25% year over year to 1.78 billion yuan. Shinih Media's revenue increased 9% year over year based on the low 2H22 base, but annual revenue still declined 22% year over year due to delays in project distribution. Non-Shinih Media's revenue increased 38% year over year, mainly due to increased revenue from copyright licensing, proprietary games and animation.
Due to stricter cost controls, operating expenses fell from 44% of 2H22 to 41% of revenue. 2H23 adjusted net profit of $527 million (down 23% year over year).
2024 outlook: We expect adjusted profit for 2024 to be $1.48 billion (up 31% year over year). Shinih Media aims to reach or exceed 500 million yuan by 2024, and plans to release 6 to 7 TV series this year, including “Hot and Hot” (the movie went live in February and has already grossed more than 3.4 billion yuan), “With Phoenix”, and “Celebrating the Years 2.” In addition, two more films are being prepared. Management aims to add 1 to 2 projects each year to produce more TV series based on Reading Group's IP. Regarding IP revenue other than Shinih Media, management said that the number of cartoons will increase year over year. Additionally, two self-developed games and several licensed games will be launched this year. At the same time, the company will choose to launch IP-based peripherals at some point in order to have a synergy effect with TV series screenings. In terms of online reading, we expect 2024 to be broadly flat, with a focus on paid reading. As adjustments to Tencent/third-party channels are nearing completion, we expect the year-on-year revenue of these two segments to remain generally stable.
Reiterating the “Buy” rating, the SOTP target price was lowered to HK$32.00: due to weaker online reading performance, we lowered our anticipated revenue for 2024/25 by 3%; our adjusted net interest rate forecast remained largely unchanged. We have revised the SOTP target price according to the following sections: 1) HK$8.00 per share for the non-Shinih Media IP operating segment, based on 20 times the 2024 P/E; 2) Shinih Media's division is HK$12.00 per share, corresponding 20 times the 2024 P/E; 3) the online business segment is HK$12.00 per share, corresponding to 20 times the 2024 P/E. The target multiplier is consistent with that of peers. Risk warning: Integration into the Tencent ecosystem is slowing down; competition is intensifying.