Net profit for 23 years was 263 million yuan, which was in the upper middle of the performance forecast. Maintaining the “buy” rating, the company published the 23 annual report: 23 year revenue of 5.334 billion yuan (yoy +82.67%), and net profit of 263 million yuan (yoy +222.36%), which is in the upper middle of the performance forecast range (2-3 billion yuan), after deducting net profit of 112 million yuan (yoy +129.11%). The strong increase in performance in 23 years was mainly due to the continuous recovery of the industry and the recovery of the company's main film business. The company announced a 23-year profit distribution plan with a cash dividend of 0.71 yuan (tax included) for every 10 shares. We expect net profit to be 8.12/898/993 million yuan in 24-26. Comparable company Wind agreed to expect the average PE value to be 24X in 24. Considering the company's outstanding creative ability and many projects to be screened, a 24-year valuation of PE 30X was given, corresponding to a target price of 12.9 yuan, maintaining a “buy” rating.

The main film industry is progressing steadily, and the gross margin of the screening business sector increased dramatically in 23 years. Based on changes in the economic conditions of the industry and customers, the company prepared 333 million yuan in accounts receivable and inventory price declines. After excluding this impact, net profit returned to the mother of 596 million yuan, an increase of 613.85% over the same period in '22 (after excluding asset and credit impairment losses). The company's gross profit margin in '23 was 24.49%, an increase of 6.62 pct. Cost rigidity was mainly due to a sharp recovery in box office revenue in the screening business sector, which led to a sharp increase in gross margin of 37.78 pcts. By the end of '23, the company's controlled and owned cinemas covered a total of 21,600 screens nationwide, with a total screen market share of 27.91%. The company's sales/management/R&D/finance rate in '23 was 2.94%/9.84%/0.96%/-1.09%, compared to -1.6/-7.19/ -0.66/-0.3pct. Among them, the sales and management expenses ratio decreased significantly, mainly due to high revenue growth and relatively rigid costs.

The film market continues to recover, and many of the company's films have performed brilliantly

The film market continued to recover in '23, and the national movie box office was 54.915 billion yuan, an increase of 83% over the previous year. The company's various operating data are improving, including: 1) the creative sector, which produced and screened 37 films in '23, with a total box office of 26.889 billion yuan, accounting for 58.45% of the total box office of domestic films. Among them, “Man Jiang Hong”, “Life Is Unfamiliar” and “Give It All” won the Spring Festival, May 1st, and Summer box office titles respectively; 2) Distribution section, where the company led or participated in the distribution of 570 films, with a settlement of over 41.397 billion yuan, accounting for 82.93% of the total box office. Among them, it led or participated in the distribution of 474 domestic films, with a cumulative box office of 36.08 billion yuan, accounting for 85.54% of the total domestic film box office during the same period; 96 imported films were distributed, with a cumulative box office of 5.389 billion yuan, accounting for 68.9% of the total box office of imported films nationwide during the same period.

There are plenty of projects to be screened, and “Legend of the Hero Conqueror” and “Volunteer Army 2” are expected to contribute to flexible performance. The company will focus on key themes, increase original development efforts, promote the “Chinese Film Young Filmmakers Program”, and coordinate resources to create quality products, thus promoting the improvement of both scale and quality of creation. In terms of the creative sector, among the Spring Festival movies in '24, the films “Hot and Hot”, “Speeding Life 2”, “Bears Go: Reversing Time and Space”, and “Article 20,” which the company participated in, ranked in the top four of the Spring Festival box office rankings. Currently, the company has more than 60 projects to be screened, created, and developed, including “Legend of the Conqueror Heroes” and “Volunteer Force 2,” which are expected to contribute to flexible performance in the future.

Risk warning: Movie box office falls short of expectations, content regulation risks, and the supply of imported films falls short of expectations.