Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 2,267 billion yuan, YoY -8.39%, net profit to mother of 382 million yuan, YoY -5.08%; 2024Q1 achieved revenue of 177 million yuan, YoY -81.69%; net profit to mother of 30 million yuan, YoY -79.58%.
The series's leading position is stable, and the broadcast pace affects Q1 performance. In 2023, the company's TV drama production and distribution revenue was 1,590 million yuan, an increase of 3.68% over the previous year, and TV drama copyright distribution revenue was 407 million yuan, an increase of 19.33% over the previous year. “To a Windy Place” became a phenomenal work throughout the year, with a double harvest of popularity. The decline in 24Q1 revenue was mainly affected by the pace of TV series broadcasts. Of the 7 series that premiered in '23, 3 were concentrated on 23Q1, while only 1 was broadcast in the same period this year. In '23, the company strategically upgraded and adjusted the drama business, raised requirements for script creation, moderately delayed the development and launch time of movies and TV dramas, and strengthened the management of the entire life cycle of film and television IP. Currently, all projects under development are copyrighted dramas. Currently, there are 8 series projects in post-production/review or ready for broadcast, and pre-sale contracts of 1.981 billion yuan were completed in 2023.
Empowered by IP, active layout of fine short dramas. According to Ai Media Consulting, the size of China's online short drama market increased 267.65% year-on-year to 37.39 billion yuan in '23. The company made full use of the IP value of the leading series and collaborated with Douyin to screen the boutique skit “Looking for Song” and “My Way Home with Wind”. Among them, “My Way Home Has Wind” had a total broadcast volume of over 200 million, ranking in the top three Douyin skits during the Spring Festival. This year, the company plans to create quality skits such as “The Man Who Saved Time” and “My Way Home Has Wind 2”, and increased capital investment in the direction of skits.
AIGC leader in the film and television industry, copyright value is expected to be reassessed. The company actively embraces AI technology, has established a matrix of practical AI applications/tools for Wensheng Literature, Wensheng Map, Wensheng Audio, and Wensheng Video, and has developed its own vertical model for the “windy” industry. The company has more than 50,000 hours of genuine film and television copyright library and 1.5 million minutes of high-definition/ultra-high-definition original shooting material. It can be processed through cleaning, labeling, processing and other techniques to form copyright data sets, which can be used in multi-modal model training in the vertical field.
Profit forecast: We expect the company's net profit for 24-26 to be $527/6.14/671 million yuan, YoY +38.0%/+16.4%/+9.3%, maintaining a “buy” rating.
Risk warning: policy and regulatory risks, drama film/broadcast progress falling short of expectations, risk of bad morality for star artists