1Q24 results were higher than our expectations
The company announced 1Q24 results: revenue of 842 million yuan, up 13.5% year on year; net profit to mother of 219 million yuan, up 46.4% year on year; net profit after deducting non-return to mother of 155 million yuan, up 13.6% year on year. The company's net profit was higher than our expectations, mainly because the company's production and distribution business revenue was slightly higher than expected, and the net investment income exceeded expectations.
Development trends
The main business is developing steadily, and the cinema side continues to compete with the fittest. Cinema construction: The company said it opened 11 new direct-run cinemas in 1Q24, added 71 new screens, continued to overcome the fittest, increase overall competitiveness, shut down 1 cinema, and 6 screens. As of 1Q24, the company has a total of 442 direct-run cinemas and 84 affiliated cinemas that have been opened. Market share: The company's 1Q24 direct-run cinemas had a cumulative box office of 571 million yuan (excluding service fees, same below), with a market share of 3.85%, an increase of 0.1ppt over the previous year; the cumulative box office of participating cinemas was 91 million yuan, a market share of 0.61%, a year-on-year decrease of 0.02ppt. We believe that through the industry-leading pace of cinema construction and continuous quality optimization and adjustment, the company's market share is growing steadily.
1Q24 gross margin remained stable year over year, and market share was rising steadily. The company's 1Q24 gross profit margin was 30.5%, a slight decrease of 0.2ppt year over year. We believe that the company's cinema business has benefited from the improved operating environment of the film industry, and the overall gross margin is relatively stable. In terms of operating expenses, the company's sales expenses rate and management expense ratio decreased by 0.1 ppt and 0.2 ppt to 0.7% and 1.9%, respectively, over the same period last year, maintaining relatively low levels. In addition, 1Q24's investment income was 41.57 million yuan, which contributed to profits.
The content capacity has been vigorously built, and the Spring Festival file presentation performed well. The 1Q24 company participated in the production of films such as “Life at a Glance 2”, “Bears Came: Reversing Time and Space”, and “Article 20.” According to Een data, as of April 19, the above three films had grossed 30.71/18.10/2,228 billion yuan without service fees, respectively. The company also participated in the production of the online drama “Knights Don't Work” and the promotion of online movies such as “The Puppet Bride” and “Black Water Ridge”. We judge that the content business contributed to the first quarter results. We recommend continuing to pay attention to broad-market box office growth trends and the profit forecast and valuation of innovative business development potential such as company content production
Considering the potential of the content production business and the impact on return on investment, we raised our 2024/2025 net profit forecast by 9.6%/7.0% to 388/407 million yuan. The current price corresponds to 25.1/23.5 times P/E for 2024/2025. Maintaining a neutral rating, taking into account profit forecast adjustments and the sustainability of investment returns, we raised the target price by 7.6% to 17 yuan, corresponding to 28.4/26.5 times the 2024/2025 price-earnings ratio, with 12.9% upside compared to the current price.
risks
The industry's box office performance fell short of expectations, the increase in market share fell short of expectations, and box office uncertainty about key points.