Incidents:
(1) On April 18, 2024, Ciwen Media announced its 2023 annual report, with 2023 revenue of 460 million yuan (YOY -1.12%), net profit to mother of 0.28 million yuan (YOY -43.9%), net profit of non-return to mother - 40 million yuan (2022:204 million yuan).
(2) On April 18, 2024, Ciwen Media announced the new “1133” strategy and proposed short-, medium- and long-term strategic measures.
Investment highlights:
The 2023 results are under pressure in the short term.
(1) 2023 revenue of 450 million yuan (YOY -1.12%), net profit due to mother of 0.28 million yuan (YOY -43.9%), net profit of non-return to mother - 40 million yuan (2022:0.04 billion yuan); non-recurrent profit and loss of 67.28 million yuan (YOY +49.4%), mainly from impairment accounts receivable that were tested separately to be transferred back to 42.09 million yuan; gross profit margin 7.85%, down 15.11 pct year on year; the period expense ratio was 6.22%, down 2.21pct year on year.
(2) 2023Q4 revenue of 0.18 million yuan (YOY -73.6%), net profit attributable to mother of 3.59 million yuan (YOY +158.1%), net profit of non-return to mother -36 million yuan (2022Q4 is -61 million yuan).
The “1133” development strategy was issued, and short, medium- and long-term strategic initiatives were proposed.
(1) Focus on one goal and establish a link: Strive to push the company from a content-only production film and television company to a relevant diversified, asset-light, platform-operated pan-cultural company within 3-5 years. Relying on the Jiangxi Cultural Investment Platform, the Jiangxi Cultural Investment Fund, and the “Cultural Enterprise Loan” driving effect, we have established an investment link for the film, television and pan-cultural industries.
(2) Establish 3 major positions: ① Content: Promote the implementation of the “Gulong IP” strategic cooperation and further develop and operate the company's IP library. ② Channel: Strengthen cooperation with major platforms such as iQiyi and Tencent Video; ③ Team building: Recruit or strategically cooperate with well-known producers, directors, screenwriters, and outstanding production teams.
(3) Build 3 major industrial clusters: build a film and television production industry cluster combining long, medium, and short dramas; a pan-entertainment industry cluster centered on games/animation and derivatives; and digital cultural asset industry clusters such as digital copyright/metaverse/AIGC.
(4) Short-, medium-, and long-term strategic initiatives: ① Short-term (1-2 years): adjust the organizational structure and establish an incentive mechanism; actively expand new businesses such as games, applet skits, and interactive dramas. ② Mid-term (3-5 years): Build an IP library and launch 1-2 major three-dimensional IP development projects (“Dragon IP Series”, “Ciwen Martial Arts Series”, etc.); focus on investment in new technologies such as AI and VR/AR, and actively lay out overseas business. ③ Long-term (more than 5 years): Successful transformation to achieve the strategic goals of “1133” development.
The main drama business has resumed its pace, and several projects are progressing steadily.
(1) In 2023, the movie and TV drama business revenue was 459 million yuan (YOY -1.46%), with a gross profit margin of 7.82% (down 15.2pct year over year), confirming the distribution revenue of series such as “Firefly”, “Zichuan: Three Masters of Light”, and “Zichuan: King of ****” and the multi-round distribution revenue of existing series (in 2022, “The City of Streaming”, “Two Conjectures of Marriage”, “Ice Hockey Boy”, “Blood Battle for Songmaoling”, etc.). Dramas such as “Self-Defense” and “Attack on the Dark Tide” have already been released and are expected to be broadcast in 2024; “Deep Sea 1950” has already been launched; “A Thousand Bones 3,” “A Thousand Bones,” “A Thousand Balls of Love,” and “Blue Cloud Level” are expected to launch in 2024Q4; “Prosecution of Roses”, “Dawn of the Moon”, and “Wanli Mountains and Rivers” are being planned.
(2) The company's game business revenue in 2023 was 1.29 million yuan (YOY +361.1%), with a gross profit margin of 65.66% (-51.8% in 2022).
Actively explore new opportunities.
(1) AR: In September 2023, the company's wholly-owned subsidiary and the company's affiliate Jiangxi Wenxin-1 Cultural Industry Development Investment Fund jointly invested in AR glasses leader Rokid. The two sides cooperated in fields such as intelligent guided tours in the offline travel industry, multi-scene interactive experiences with AR digital content, AR vocational education, and AR aesthetic education.
(2) Short dramas: Starting in August 2023, we will efficiently promote the development and production of five short dramas (all of which have already been registered), including “A History of Martial Arts” and “Legend of the Martial Arts”, which is expected to launch in 2024Q2, “Full Moon Scissors” is expected to launch in 2024Q3, and the remaining three are expected to launch in 2024Q4.
(3) Interactive drama: Strategic cooperation with Mutual Film Technology, a leading company on the interactive movie game circuit, to jointly develop and adapt classic IP-derived interactive dramas through new methods of AI creation to create an interactive drama universe.
(4) AI+: In March 2024, the future strategic cooperation with multi-modal model startup Zhixiang will use its AIGC video technology to develop short dramas, interactive drama content, video clips, promotional materials, and assist it in promoting matters such as data asset identification and data element confirmation; Intelligent will use the company's video and television material library to conduct large-scale model training.
Profit forecast and investment rating: We expect the company's net profit to be 0.73/0.93/114 million yuan in 2024-2026, the corresponding EPS is 0.15/0.20/0.24 yuan, and the corresponding PE is 45.46/35.75/28.96X. The company has a state-owned enterprise background, lightweight finance, and a steady recovery in its main business. “1133” helped the company build a pan-cultural platform enterprise, and the pace of short, medium and long-term goals is clear. Based on this, it was covered for the first time, and the company was given an “increase in weight” rating.
Risk warning: Increased market competition, downward valuation center, regulatory risk, competition in other forms of entertainment, drama development process and performance falling short of expectations, cost control falling short of expectations, risk of inventory and asset impairment, risk of credit impairment, insufficient funding, falling short of expectations, falling short of expectations in new business development, and risk of information disclosure.