Incidents:

On March 21, 2024, Beijing time, Maogan Entertainment announced its 2023 annual results. In 2023, the company achieved revenue of 4.8 billion yuan, an increase of 105.1% over the previous year. Among them, the entertainment content service business was 2.30 billion yuan, up 106.6% year on year; online entertainment ticketing business revenue was 2.26 billion yuan, up 111.5% year on year; and advertising services and other business revenue was 200 million yuan, up 43.5% year on year.

Profit side performance was greatly optimized. Net profit in 2023 was 908 million yuan, up 766% year on year; adjusted net profit was 1,029 million yuan, up 342.2% year on year.

Entertainment content services: The business achieved leapfrog growth, market coverage and promotion capacity improved in 2023, and the entertainment industry achieved strong recovery and growth. According to data from the National Film Administration, the total box office of national films reached 54.915 billion yuan, an increase of 82.64% over the previous year, and the annual box office of domestic films reached 46.05 billion yuan, a record high. In 2023, the company's entertainment content services business achieved revenue of 2.3 billion yuan, an increase of 106.6% over the previous year. Among them, many films controlled by the company during the Spring Festival, May 1st, and Summer programs performed brilliantly, and the company's publicity service capabilities and market coverage were further improved. 1) In terms of content investment, the company participated in a total of 54 domestic films that were screened in 2023, achieving a total box office of 18.698 billion yuan, and the market coverage rate reached a record high in the same period in history. At the same time, the company further increased the number and depth of participation in the headline film. In 2024, the company participated in “The Annual Meeting Can't Be Stopped!” “One Twinkle, One Sparkling Crystal” and “Golden Finger” are in the top three of the New Year's Day box office, and “Speeding Life 2”, produced and sponsored by the company, ranked second in the Spring Festival box office. We believe that as the company's participation in high-quality projects increases, Maogan Entertainment is expected to continue to show flexibility in performance. As of March 26, Maoyan Entertainment's scheduled programs include “Yellow Finch is behind!” The number of people who want to watch “The Big “Opposition” and “The Last Way to Spend Money” is 200,000, 22,000, and 59,000, respectively. Follow-up content reserves are rich in types and topics. In terms of action films, the company has reserves of “Crisis Line” (starring Andy Lau, Zhang Zifeng, Qu Chuxiao), etc.; in terms of suspense films, the company reserves “Decryption” (the novel of the same name by Mai Family, directed by Chen Sicheng); in terms of animated films, the company reserves dozens of films such as “Children of Time” and “Umbrella Girl”, which are expected to be released one after another in 2024. 2) In terms of publicity services, in 2023, the company served more than 200 theatrical movies, which helped increase the box office by 227% year-on-year compared to 2022. Among them, of the top ten grossing movies in China in 2023, 4 were advertised by Maoyan. We believe that as the company continues to deepen its promotion capabilities, it is expected to help the film achieve excellent performance in the box office and popularity.

Online entertainment ticketing: The online movie ticketing business leads the industry. Offline performance ticketing contributed to flexible performance. In 2023, the company's online entertainment ticketing business achieved revenue of 2.26 billion yuan, an increase of 111.5% over the previous year. It continues to maintain its leading position in the market and continues to strengthen its competitiveness. 1) Online movie ticketing: According to Lighthouse Professional Edition data, the total box office of Chinese films reached 54.94 billion yuan, an increase of 83.4% year on year, returning to 86% in 2019; the number of movie viewers reached 1,299 billion, an increase of 82.4% year on year, returning to 75% in 2019. We believe that the overall box office performance of the 2023 film market has benefited from increased ticket prices, and demand for movie viewing has not been fully released. Driven by the supply of subsequent films and the total number of movie viewers, there is still plenty of room for improvement in the box office performance of Chinese films in 2024. 2) Offline performance ticketing: In 2023, the national performance box office revenue was 50.232 billion yuan, up 150.65% year-on-year from 2019, and the offline performance market fully recovered. According to data from the China Performance Industry Association, the cumulative number of spectators in the first three quarters of 2023 reached 111 million, exceeding the total number of spectators for the whole year ended December 31, 2019. In 2023, the company's total revenue from offline shows and GMV both reached record highs for the same period. We believe that as the company invests more in expanding its business types, it is expected that the competitiveness of the performance ticketing business will be further enhanced. In terms of general ticketing agents, the company provides a full range of ticketing services for over 100 concerts, including many leading entertainers such as Zhang Xueyou, Chen Yixun, Jay Chou, and Junjie Lin; in terms of e-sports, it provides services for the 2023 League of Legends Professional League Spring Season playoffs; and in terms of sporting events, it serves more than 300 top events, including the 2023 CBA All-Stars. In overseas markets, the company launched the ticketing platform UUTIX in the second half of 2023 and officially launched its own ticketing business for shows in Hong Kong, China. At the same time, the company established strategic partnerships with Tencent Video and Sands China in Macau, China, and carried out comprehensive and in-depth cooperation in various fields such as large-scale offline events, content recording for leisure and entertainment programs, and online marketing and promotion. We believe that in 2024, many high-profile projects in the market are expected to be finalized one after another, incremental contributions can be expected, and the online box office business of Maogan Entertainment is expected to be the first to benefit. At the same time, the major trend of strong supply and demand and increased activity in the offline performance market is likely to continue, and the expansion of Maogan Entertainment's offline performance ticketing is expected to bring about performance elasticity.

Investment advice: As the leading domestic online ticketing platform, domestic film distributor, and Internet entertainment comprehensive marketing platform, Maogan Entertainment's layout runs through the upstream and downstream of the industry. Participation in the company's top videos has increased in recent years, and profitability is expected to increase. Furthermore, based on Maogan's big data reserves and continuous integration of superior internal and external resources, it provides more possibilities for the company to improve its capabilities in marketing services, data platform services, etc.

We adjusted Maogan Entertainment's 2024-2025 revenue to $52.45/6.015 billion yuan (previous values were 5.977/6.574 billion yuan, respectively), adjusted net profit of 984/1,078 million yuan (previous values were 828/1,041 million yuan, respectively), and the current market value corresponds to the adjusted 2024-2025 net profit P/E 10.1x/9.2x, maintaining the “buy” rating.

Risk warning: Video box office falls short of expectations, video progress falls short of expectations, content regulation risks, implementation of generative AI applications falls short of expectations