Description of the event
The company released its 2023 annual report and 2024Q1 quarterly report: in 2023, the company achieved revenue of 1,546 billion yuan, up 104.74% year on year; realized net profit of 418 million yuan, up 158.62% year on year. 2024Q1 achieved revenue of 1,070 billion yuan, a sharp increase of 159.33% year on year; net profit of 425 million yuan, a significant increase of 248.01% year over year.
Incident comments
The market recovered strongly, reserve projects continued to be released, and the company's operations resumed well in 2023. In 2023, the domestic film market ushered in a strong recovery, achieving a box office of 54.92 billion yuan, an increase of 82.6% over the previous year. The annual number of moviegoers reached 1.30 billion, an increase of 82.7% over the previous year, a record high in the past four years. The performance of Chinese films was particularly outstanding. Benefiting from the strong recovery of the market, the company's reserve projects were released one after another. The company's film business achieved revenue of 1.29 billion yuan (+116.8% year over year), and profit increased sharply year on year, supporting the company's performance recovery. Movies screened by the company in 2023 include “Deep Sea”, “Man Jiang Hong”, “Exchanging Lives”, “Chinese Ping Pong Strikes Back”, “So Many Years”, “Tea Ah No. 2 Middle School”, “I Went Through the Storm”, “Strong as a Rock”, “Lighting Store”, “Rage”, and “Your Wedding” (rerun), with a total box office gross of about 8.46 billion yuan.
The movie, TV drama/online drama business has blossomed, and the company's 2024Q1 performance has improved significantly. 1) Film business: The films released by the company on 24Q1 include the animated film “Heavy Rain” and the law-themed film “Article 20,” which performed well, with a total box office gross of about 2.47 billion yuan. Among them, “Article 20” has gone viral since its release, ranking in the top 4 in the 2024 Spring Festival box office, with a cumulative box office of over 2.4 billion yuan. 2) TV drama/online drama business: The company's online drama adapted from the popular comic “Dali Temple Diary” was broadcast online on February 20, 2024. Thanks to the outstanding performance of the company's movie business and TV drama/online drama business in the first quarter of 2024, the company's 2024Q1 performance increased dramatically.
AI has enabled the production capacity of animated films to increase, and the company has abundant reserves of subsequent films, which is optimistic about the company's future performance growth. 1) Focus on the construction of animated film production capacity: The company has two business lines, Color Strip House and Light Animation, to promote animated film production. It has produced “Big Rain Begonia” and “Demon Boy Nacha”, which are loved by the audience, and has now stocked dozens of mythical universe works. In the future, it will continue to use AI technology to enable animation production and increase the company's animated film productivity. The company's animated film “Xiao Qian” is scheduled to be screened “May Day” in 2024, and “Nacha's Demon Boy in the Sea” is expected to be screened in 2024. 2) Abundant reserves of future films:
The films to be screened by the company in 2024 also include “Fight Blackmail: Never Give Up”, “Invisible Man”, “Mo Duo's Lost Adventure”, “Little” Characters, and “In Hand”. It is expected that the preparation and production of films include “Big Fish Begonia 2,” “Acacia,” “Shuo Feng,” and “Red Kids.” In terms of TV dramas, the costume light comedy “Jade Saddle” is expected to be broadcast in 2024, and series such as “Mountain and River Pillow”, “Spring Feast”, and “My Date List” are also in production.
Investment advice: Considering that the company has abundant reserves of high-quality works, which is expected to support the continuous release of profits, we expect the company to achieve net profit of 11.21/1,263 billion yuan in 24-25, corresponding to PE 25.91X/23.00X in 24-25, respectively, to maintain a “buy” rating.
Risk warning
1. The recovery of film and television theaters falls short of the expected risk;
2. The film schedule falls short of the expected risk;
3. The box office performance of the work falls short of the expected risk.