Incident: The company disclosed its 2023 annual report on April 22, 2024. In 2023, the company achieved operating income of 14.628 billion yuan, up 4.66% year on year; net profit to mother was 35.56 billion yuan, up 90.73% year on year, mainly affected by one-time adjustments of 1,629 billion yuan brought about by corporate income tax policy changes; deducted non-net profit of 1,695 billion yuan, up 5.70% year on year; basic earnings per share were 1.90 yuan, up 90% year on year. The company's 2023 annual profit distribution plan plans to distribute 1.8 yuan (tax included) for every 10 shares, totaling 340 million yuan in cash dividends. The dividend rate is 0.76% based on the closing price on the 21st. On the same day, the company announced its results for the first quarter of 2024. In the first quarter of 2024, the company achieved operating income of 3.324 billion yuan, an increase of 7.21%; net profit to mother of 472 million yuan, a decrease of 13.85%; deducted non-net profit of 467 million yuan, a decrease of 10.40% year on year; and basic earnings per share of 0.25 yuan, a decrease of 13.79% year on year. The company confirmed an increase of 87.922 million yuan in income tax expenses in the first quarter compared to the same period last year, leading to a year-on-year decline in profit after tax.

The performance of the film and television variety show business data is impressive, with over 65 million members in 23 years. In 2023, Mango TV's Internet video business achieved revenue of 10.614 billion yuan, an increase of 1.88% over the previous year. Among them, the membership/advertising/operator business achieved revenue of 43.15/35.32/ 2,767 billion yuan respectively, a year-on-year change of +10.23%/-11.57%/10.27%. By business, 1) Membership business: In 2023, the company's membership business accelerated, accounting for a year-on-year increase of 0.9 pct in total revenue. By the end of 23, the number of active members of Mango TV reached 66.53 million. The average production ratio of members-customized innovative IPs such as “Happy Adults,” “Forest Evolution Theory,” and “Fengshen Training Camp” reached 286%. We believe that the company's membership growth and content investment have formed a virtuous cycle. As the company's business activities advance in an orderly manner and refine the ARPPU value, the business is expected to maintain high growth under the “two-wheel drive” of the number of members and ARPPU values. 2) Advertising business: In 2023, the basic market of the company's advertising business was stable and continued to improve. The “comprehensive N generation” stabilized the investment market for variety shows, and the contribution of high-quality movies and TV dramas drove the increase in performance. The year-on-year decline in revenue for the full year of '23 was significantly narrower than in the first half of the year. In the fourth quarter of '23, advertising revenue increased 15.95% year on year, reversing the trend of changing from negative to positive. “Going to a Windy Place” and “Using Love as a Business” broke the company's records for investment amount and number of project partners over the past three years. 3) Operator business: In 2023, the company's operator business continued to develop steadily. Businesses outside the province rely on cooperation with operators, especially strategic cooperation with China Mobile, to improve the launch rate and recommendation rate of large-screen content and achieve full coverage of basic services and value-added services.

The content side further consolidates supply advantages and creates a deeply integrated ecosystem for diversified development of mangoes. On the content side, variety shows continue to consolidate their leading edge in the industry, and movies and TV dramas continue to strengthen the supply of high-quality content. 1) Variety shows: In 2023, Mango TV launched more than 100 variety shows of all kinds. The number of new variety shows, number of solo shows, and innovation rate all top the industry rankings. In the first quarter of 2024, “Big Detective Season 9,” “Flowers and Youth: Silk Road Season,” and “Endless Sound: Family Year” were among the top three effective online variety shows on the Q1 network. Follow-up reserve projects include “Riding the Wind 2024,” “Singer 2024,” “Breaking Through Thorns 4,” “Happy Friends 2,” and “China Village Flowers.” 2) Movies and TV series: In 2023, Mango TV will launch 128 series of various types, including key movies and TV dramas and “The Big Man Project” short series. In 2024, the company's reserves include more than 80 movies and TV dramas such as “National Color Fanghua”, “Water Dragon Song”, and “People in the Alley”, as well as 100 short dramas. Give full play to the synergy of the “four platforms” to create a deeply integrated ecosystem for diversified development of mangoes. 1) Golden Eagle Cartoon: In 2023, Golden Eagle Cartoon achieved a net profit of 63.4737 million yuan and fulfilled its annual performance promise. As the leading parent-child content platform in China, Golden Eagle Cartoon has formed all-round collaboration with the company's original business in program innovation, marketing resources, animation venture capital, research park, and derivative products, which is expected to build a children's program content barrier and parent-child ecosystem. 2) Xiaomang e-commerce: GMV exceeded 10 billion yuan in 2023, of which the first self-operated fashion clothing brand “Nanbowan” had a GMV of over 270 million yuan. In 2024, Xiaomang e-commerce will fully integrate Mango's ecological production advantages and artist resources to create a unique “super live broadcast room”. GMV may continue to maintain rapid growth and strive to achieve break-even during the year. 3) Skit business: In 2024, it is expected that 200 vertical screen applet dramas will be produced and launched, and a mini skit app will be created. The company's short drama collaboration with Douyin is progressing smoothly, and they have jointly launched a number of boutique short dramas such as “Little Year Beast and Monster Catcher” and “Aunt's World: Lunar New Year”. 4) Overseas business: Up to now, the Mango TV international app has covered 195 countries and regions around the world, and has been downloaded more than 140 million times. In 2024, the company implemented a “plan to double the number of users” of the Mango TV international app, increase copyright output, continue to promote the Mango variety show model overseas, and continuously enhance the influence of Mango content overseas. 5) AI aspects:

The company has launched more than 40 AI products, and AI 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 and improving operational efficiency.

Investment advice: Considering the rapid growth of the company's membership business, the slow recovery of the advertising market, and the increase in overseas market contribution performance, we forecast that the company's 2024-2026 revenue will be 165/183/19.7 billion yuan (the previous value was 148/15.8 billion yuan, respectively), an increase of 12.47%/11.10%/8.00% year-on-year, and the company's net profit to mother in 2024-2026 will be 21.33/22.68/2,595 billion yuan (24.3/2.68 billion yuan, respectively). Maintain a “buy” rating.

Risk warning: policy and regulatory risks, project progress falling short of expectations, advertising business recovery falling short of expectations, membership growth falling short of expectations