Incidents:

On April 19, 2024, Light Media announced the 2023 Annual Report and 2024 Quarterly Report:

(1) In 2023, the company's revenue was 1,546 million yuan (YOY +104.7%), net profit attributable to mother was 418 million yuan (YOY +158.6%), after deducting non-return net profit of 388 million yuan (YOY +149.3%).

(2) 2024Q1 revenue of 1.07 billion yuan (YOY +159.3%), net profit attributable to mother of 420 million yuan (YOY +248%), net profit of non-attributable net income of 416 million yuan (YOY +252%).

(3) In 2023, a dividend of 0.7 yuan is expected for every 10 shares, for a total of 204 million yuan, with a dividend rate of 48.8%.

Investment highlights:

Net profit from 2024Q1 increased 248% year over year, and full-year performance flexibility may be high.

(1) 2023 revenue of 1,546 billion yuan (YOY +104.7%), net profit of 418 million yuan (YOY +158.6%), net profit after deducting non-return to mother of 388 million yuan (YOY +149.3%), mainly due to the good box office performance and high return on investment of mainly controlled films such as “Solid as a Rock”.

Investment income in 2023 was 61.45 million yuan (-66.53 million yuan in 2022), with investment income from Mao Eye about 155 million yuan; non-recurring profit and loss of 29.73 million yuan (74.58 million yuan in 2022), mainly government subsidies of 27.08 million yuan. Net profit margin in 2023 was 27.13% (-95.87% in 2022); gross margin was 39.89% (19.1% in 2022); the period expense ratio was 6.59% (5.6pct year-on-year decrease), of which sales/management/R&D expenses ratio was 0.32%/6.93%/2.06% (down 0.47/5.35/0.42pct year on year), with good cost control.

(2) 2024Q1 has revenue of 1.07 billion yuan (YOY +159.3%), net profit of 420 million yuan (YOY +248%), net profit after deducting non-return of 416 million yuan (YOY +252%), mainly due to the excellent box office performance of the main investment control film “Article 20” and confirmed revenue from the launch of the drama “Journey to Shaoqing in Dali Temple”. The 2024Q1 investment income is 9.05 million yuan (2023Q1 is 57.89 million yuan). It is estimated that the overall operation of joint ventures such as Maoyan was slightly worse than in the same period last year.

Film production capacity was gradually released, and the brokerage business grew steadily.

(1) Movies: In 2023, the film and related derivatives business had revenue of 1,286 billion yuan (YOY +116.8%), gross profit margin of 41.0% (up 27.9pct year over year). In 2023, it invested and released 10 films including “Solid as a Rock” (6 in 2022), with a total box office of over 8.4 billion yuan. Live action movies such as “Her Little Pear Vortex” and “Fight Black and Never Give Up” are expected to be screened within the year; “Article 17,” “People's Justice,” “White Night Walk,” and “White Lies” are in preparation.

(2) TV series: “Dali Temple Shaoqing Tour” will be launched in 2024Q1. “Jade Saddle” is expected to be broadcast on Tencent within the year, “Mountain and River Pillows” has already been launched, and preparations for “Spring Dinner”, “My Date List”, and “Lighting Store” are in preparation.

(3) Artist agents and others: 2023 brokerage business revenue of 260 million yuan (YOY +60.86%), gross profit margin of 34.29%. The first phase of the Yangzhou Film and Television Base is expected to be delivered and put into production and operation this year.

The animated film focuses on the pace of product launch and the expansion of production capacity.

(1) In 2023, the main animation “Deep Sea” and “Tea Ah No. 2 Middle School” sold over 1.3 billion yuan. “Xiao Qian” (the first part of the light animation) is scheduled to be screened on May 1st. “Nacha no Demon Boy” is expected to be screened within the year. “Big Fish Begonia 2,” “Shuo Feng,” “Red Kid,” and “Starry Sky of the Three Kingdoms” are in production, and “The Last Kite”, “Dajiji”, and “Chaa 2 Middle School 2” are in preparation. In addition, we are preparing an animation/live-action short drama of classical Chinese classics, which may be up to 1,000 episodes long.

(2) In 2022, light animation was set up to build an internal production pipeline, focusing on sorting out the “Chinese Mythical Universe”, and dozens of mythical universe works have been stocked. In the medium to long term, collaboration between the company's internal and external brands and AI evolution are expected to lead to an effective expansion of animated film production capacity.

Profit forecast and investment rating: As a leader in the film industry, the company has a multi-brand layout to build a moat and develop the “Chinese Mythical Universe” animation system. Furthermore, AI technology empowers the production of content such as animated films, and is expected to increase the production capacity and industrialization level of the entire industry, such as reducing content costs, increasing efficiency, and improving quality. We expect revenue of 2024-2026 to be 28.12/32.79/36.33 billion yuan, net profit to mother of 1,246/14.26/1,569 million yuan, corresponding EPS of 0.42/0.49/0.53 yuan, and PE of 23.30/20.37/18.51X, maintaining a “buy” rating.

Risk warning: Risks such as the stricter policy and regulatory environment, the film development process and box office performance falling short of expectations, falling short of expectations, falling short of expectations in the box office market recovery, inventory impairment, insufficient capital, intensifying market competition, declining valuation center, and technology falling short of expectations.