Incidents:
The company disclosed its annual report for '23. Revenue for the year was 14.63 billion yuan, up 4.7% year on year; net profit to mother was 3.56 billion yuan, up 90.7% year on year; net profit after deducting non-return to mother was 1.70 billion yuan, up 5.7% year on year; all were slightly lower than previous express reports.
The company disclosed its quarterly report for '24. 24Q1 achieved revenue of 3.32 billion yuan, a year-on-year increase of 7.2%; net profit attributable to mother was 4.7 billion yuan, a year-on-year decrease of 13.9%; net profit without return to mother was 4.7 billion yuan, down 10.4% year on year; the impact of tax rate changes began to be reflected.
Overall, it was basically in line with our previous expectations.
Key points of investment:
Member advertising business is improving, and operators need to pay attention to the impact of large-scale screen remediation. According to financial reports, Internet video business revenue in '23 was 10.6 billion yuan, up 2% year on year. Among them, member/advertising/operator growth rate was +10%/-12%/+10% year on year; new media interactive entertainment content production business revenue fell 17% year on year; content e-commerce revenue increased 32% year on year, of which Xiaomang's e-commerce revenue increased 50% year on year. The leading edge of Q1 Mango Variety is still stable. According to the company, Yunhe Q1 Variety Show has 10 seats in the Top 20 effective broadcasts, accounting for 52% of the market; the drama “With the Phoenix” is also very popular. Members have maintained good growth, driven by channel changes such as content and 88VIP, and advertising is picking up; however, operator business is under pressure from the impact of the big screen overhaul.
Gross margin fluctuates, and costs are effectively controlled. According to financial reports, the overall gross margin for '23 was 33%, down 1 pct from year to year; the gross margin of the Internet video business and the new media interactive entertainment content production business all increased slightly year on year. The gross margin of content e-commerce declined year on year, but Xiaomang's loss rate narrowed. The overall gross margin for 24Q1 was 29%. The decline in gross margin was affected by increased content costs for core video services and pressure on high-margin operator businesses. Expense control is obvious. The absolute value of 24Q1 sales costs/management costs/R&D expenses decreased by 6%/15%/23% year-on-year, and the cost rate was relatively low in history.
Cash flow improved markedly, and the dividend ratio increased in '23. According to financial reports, net operating cash flow was 1.08 billion yuan in 23 and 170 million yuan in 24Q1, an improvement over the previous year. The cash dividend in '23 was 337 million yuan, accounting for 20% of net profit not attributable to mother in the current period, an increase of 5 pct over '22.
The content is still the strongest catalyst, and key variety shows in Q2 were launched one after another to focus on performance. “Ride the Wind 2024” has already started broadcasting; “The Singer 2024” is recruiting a public hearing team and is about to go online.
The profit forecast was lowered and the buying rating was maintained. Taking into account the short-term pressure on operators' business (19% of revenue in '23, accounting for 48% of gross profit), the net profit forecast for 24-25 was lowered to 19.31/234 billion yuan (the original forecast was 22.10/2,436 billion yuan), and the 26-year forecast was increased to 2,496 billion yuan, corresponding PE was 22/19/17x. We are still optimistic about the company's value as a leader in state-owned new media, and maintain a buying rating.
Risk warning: macroeconomic changes, increased market competition, changes in content regulation.