Hengdian Film and Television released its report for the first quarter of 2024. In 2024Q1, the company achieved operating income of 842 million yuan, +13.50% year over year; net profit to mother of 219 million yuan, +46.43% year over year; and deducted non-net profit of 155 million yuan, +13.57% year over year.
The film and television sector is recovering strongly, and net profit is growing rapidly. With 2024Q1, the company achieved operating income of 842 million yuan, +13.50% year on year, net profit of 219 million yuan, +46.43% year over year. It mainly benefited from the recovery of the domestic film market, the recovery of the company's theatrical business, the excellent performance of the company's participating movies in the Spring Festival program, and increased investment income from equity transfers. At the end of 2023, the company announced that it would sell 39% of the shares in Hangzhou Film to Hangzhou Wenguang Group. In January 2024, the registration procedures for commercial changes related to the share sale were completed, and the company received the full payment of the share sale from Hangzhou Wenguang Group, totaling RMB 76.4423 million. 2024Q1's gross margin declined slightly by 0.23pct to 30.47%, and cost management optimization: sales/management expenses ratios were 0.74%/1.92%, respectively, -0.04/-0.17pct year-on-year, respectively.
The layout of the sinking market is seeking breakthroughs, and the market share continues to increase. As of April 20, 2024, domestic third- and fourth-tier cities accounted for more than 44% of the box office. The company forwardly lays out low-tier cities to further explore the potential of a sinking market. 2024Q1 continues to expand its business area, opening 11 new direct-run cinemas and adding 71 new screens. As of March 31, '24, the company had a total of 442/84 direct-operated/franchised cinemas, 2,822/476 screens, with a cumulative box office of 57,069.45/97.252 million yuan, with a market share of 3.85%/0.61%, an increase of +0.10/-0.02pct over the previous year.
The results of the Spring Festival program are impressive, and the follow-up reserve program is rich. In 24Q1, the Chinese film market continued to recover, with a total box office of 16.356 billion yuan, +3.14% year over year; of these, Spring Festival movies grossed 8.016 billion yuan, +18.47% year on year, and the number of movie viewers was 163 million, or +26.36% year over year. Zhejiang Hengdian Film Co., Ltd., a wholly-owned subsidiary of the company, participated in the films “Speeding Through Life 2,” “Bears Rage: Reversing Time and Space,” and “Article 20” all ranked among the top four in the Spring Festival box office. The company has scheduled the 51st edition of the film “The Siege of Kowloon Walled City”, and projects such as “The Legend of Condor Heroes: Master Knight”, “Mermaid 2”, and “True or False Master” are awaiting screening.
Maintain a “Highly Recommended” investment rating. Considering the rapid recovery of the domestic film market, the company actively lays out in low-tier cities and actively participates in film production and distribution to provide greater flexibility. It is estimated that the company will achieve net profit of 3.30/3.76/422 million yuan in 2024/2025/2026, respectively, corresponding to a valuation of 29.9/26.2/23.3 times, and maintain a “highly recommended” investment rating.
Risk warning: Film screening falls short of expected risks, offline scene recovery falls short of expected risks, etc.