Core views:
Ling Meng Film and Television issued an unaudited 2023 performance announcement: In 2023, the company achieved revenue of 1,222 million yuan, an increase of 28.41%; net profit to mother was 214 million yuan, which turned a year-on-year loss into a profit, mainly due to listing expenses of 55 million yuan and a change in the fair value of convertible and redeemable preferred shares of 789 million yuan; adjusted net profit of 227 million yuan, an increase of 60.38% year on year.
Accelerate the production of quality long dramas. In 2023, the company's long drama business achieved revenue of 1,174 billion yuan, an increase of 24.3% over the previous year; gross margin was 39.7%, up 0.3 pp from '22. During the reporting period, the company broadcast a total of 3 copyrighted dramas “Just Love”, “Ask Your Heart”, and “One Mind Guanshan”, all of which were among the highest in the industry in terms of broadcast popularity and word of mouth. The company continues to implement cost reduction and efficiency and increase production capacity. The long-running drama project has accumulated over 1,000 episodes. In January 2024, the drama “You Have Today Too”, “Hanshu Man and Woman”, “Midnight Night Return”, and “Illustrated Guide to Crime Hunting 2” is currently being produced, and the film “Jo Yeon's Heart” has gone viral. Overseas revenue in '23 was 39 million yuan, an increase of 89% over the previous year. Up to now, the Thai version of “Just Thirty” has gone viral, and the Thai version of “Illustrated Guide to Crime Hunting” is currently in production.
Establish a short drama production system at home and abroad to create a second growth curve. In 2023, the company's short drama business achieved revenue of 32.23 million yuan, an increase of more than 12 times over the previous year; gross margin was 25.2%, an increase of 46pp compared to '22, and successfully completed the profit model. During the reporting period, the company launched 8 short dramas on Douyin, including the second season of the hit skit “29,” “Behind the Traffic,” and “29.” It initially established a production and distribution system for overseas skits, and had launched 2 overseas skits as of the announcement date.
Profit forecasts and investment recommendations. We expect that in 2024-2026, the company will achieve operating income of 16.10/21.97/2,645 billion yuan and net profit to mother of 2.95/4.07/500 million yuan. The company accelerated the production of high-quality long dramas, expanded overseas, short dramas, content marketing and other businesses, and opened up a second growth curve.
Referring to comparable companies, Ning Meng Film and Television was given a PE valuation of 12 times in 2024, corresponding to a reasonable value of HK$10.81 per share, maintaining a “buy” rating.
Risk warning. Drama uncertainty; performance falls short of expectations; short dramas drag down profits; policy changes.