Incident: The company released its 2023 annual report, achieving operating income of 14.628 billion yuan (yoy +4.7%); net profit to mother of 3.556 billion yuan (yoy +90.7%).
Comment:
Membership and content e-commerce are leading the growth, and the advertising business is recovering clearly. In 2023, the company achieved revenue of 14.628 billion yuan (yoy +4.7%). (1) Mango TV's Internet video business achieved revenue of 10.614 billion yuan (yoy +1.9%); of these, Mango TV's advertising revenue was 3,532 billion yuan (yoy -11.6%), Mango TV member revenue was 4.315 billion yuan (yoy +10.2%), and operator business revenue was 2,767 billion yuan (yoy +10.3%); (2) New media interactive entertainment content production achieved revenue of 1,150 billion yuan (yoy +2.8%); (3) content e-commerce achieved revenue of 2,823 billion yuan (yoy +2.8%) +32.1%). In 2023, the decline in Mango TV advertising revenue was due to the slow recovery of the domestic advertising market in the first half of the year, the recovery of brand advertising lagged behind, and some advertisers remained relatively cautious about releasing their marketing budgets. 2023Q4 advertising revenue increased 15.95% year over year. With the steady recovery of the advertising industry, the advertising revenue growth rate is expected to marginally correct in the first half of 2024. Mango TV's membership business revenue grew steadily, mainly due to the number of active members reaching a new high of 66.53 million at the end of 2023, an increase of 12.5% over the previous year. In the future, relying on Mango TV's content+channel to promote the four major member-themed brand season activities in an orderly manner, and innovate and upgrade membership benefits, it is expected that membership business revenue will further increase in 2024. Content e-commerce has grown rapidly. Thanks to Xiaomang e-commerce's integration of mango's ecological production advantages and artist resources, focusing on core users, and embarking on a unique development path, the annual GMV has exceeded 10 billion yuan.
Gross margin stabilized, and net profit margin declined slightly after deduction. (1) In 2023, the company's operating cost was 9.803 billion yuan, with a gross profit margin of 33.0%, down 0.9 percentage points from the previous year. Among them, the gross profit margin of Mango TV's Internet video business was 41.3%, up 0.2 percentage points from the previous year; the gross profit margin of the new media interactive entertainment content production business was 25.6%, up 6.4 percentage points from the previous year; and the gross profit margin of the content e-commerce business was 5.0%, down 1.4 percentage points from the previous year. The gross margin of Mango TV's Internet video business increased slightly, mainly due to the accelerated development of the membership business, the stable basic market of the advertising business, and the steady development of the operator business. The various sectors showed a trend of structural complementarity. The gross margin of the new media interactive entertainment content production business has increased steadily, thanks to the company's active exploration of cutting-edge technology applications and business format innovations such as AI, and is widely used in business scenarios such as media operations, advertising, member interaction, video editing, and content production, greatly reducing content promotion costs and platform customer acquisition costs. The gross margin of the content e-commerce business declined slightly, stemming from Happy Shopping giving full play to Mango's ecological advantages, developing high-quality products on the supply chain side, and building multiple categories of its own brands. (2) Sales expenses of 2.26 billion yuan, a sales rate of 15.5%, a year-on-year decrease of 0.5 percentage points; management expenses of 610,000 yuan, a management rate of 4.2%, a year-on-year decrease of 0.4 percentage points; R&D expenses of 280 million yuan, and R&D expenses of 1.9%, an increase of 0.2 percentage points over the previous year. Net profit attributable to mother was 3.56 billion yuan, including non-recurring profit and loss of 1.86 billion yuan, after deducting net profit of 1.7 billion yuan. The corresponding profit margin was 11.6%, a decrease of 1.2 percentage points over the previous year.
As we continue to enhance high-quality series, short dramas will become a new source of incremental content. In 2023, Mango TV will launch 128 series of various types, including key movies and TV dramas and the “Big Mango Project” short drama. The three series “To a Windy Place”, “Apocalypse” and “Asking Cang Mang” were selected for the “2023 Chinese Series Selection” by the State Administration of Radio and Television; a “Quality Short Drama Support Program” was jointly created with Douyin to jointly explore new spaces for long and short video collaboration; “Wind and Moon Change” landed on Hunan TV, becoming the first short drama to rise to the stars in China. In 2024, the company will reserve more than 80 movies and 100 short dramas, and the supply of high-quality content will continue to increase.
Investment advice: The company's performance in 2024 is expected to recover at an accelerated pace with the recovery of the advertising market, the release of short drama reserves, and active adjustments. The company's net profit from 2024-2026 is estimated to be 2,207 billion yuan, 2,714 billion yuan, and 3,017 billion yuan respectively. Corresponding to current stock prices, PE is 19X, 15X, and 14X, respectively, maintaining a “highly recommended” rating.
Risk warning: (1) content distribution falls short of expectations; (2) advertising investment falls short of expectations; (3) membership growth falls short of expectations.