Core views

China's Ruyi is a streaming media company empowered by technology. Its subsidiary owns Ruyi Pictures, Pumpkin Movies, and Jingxiu Games. The company actively lays out the Internet streaming business, with user service as the core, and focuses on a vertical pure paid subscription membership system. The company has a business model integrating production, distribution, and broadcasting. It relies on Ruyi Film's high-level production capabilities to provide high-quality content support for Pumpkin Movies. The company has many IP resources, and is expected to further enhance IP monetization capabilities through film and game linkage in the future, while nurturing the content business to exit the market, forming a positive flywheel effect of content+distribution+playing+game. In December '23, Ruyi invested in Wanda Film and became the actual controller. It is expected to strengthen business collaboration and further improve the layout of the industrial chain.

Join forces with Wanda Film: Ruyi invests in Wanda Film to become the actual controller and strengthen business collaboration. After the equity transfer agreement is reached, China's Confucius will indirectly control 20% of Wanda Film's shares through Wanda Investment and become the actual controller of Wanda Film. Recently, the company has successively completed management changes at Wanda Film. Ms. Chen Xi took over as chairman and president, and Ruyi officially took over Wanda's operations. We believe that the strong alliance between Ruyi and Wanda is expected to achieve full-link synergy effects, including: 1) integrating resources and complementing advantages to strengthen voice in the industry chain; 2) improving content quality and innovation; 3) in-depth exploration of IP value; 4) talent training and film culture promotion. The company's content business is expected to continue to strengthen in 2024, and reserve projects are abundant. Confucian follow-up reserve projects include movies such as “Reinforcements Arrive Tomorrow”, “White Snake: Floating Life”, and “Retrograde Life”; as well as TV series such as “The Prosecutor and the Teenager” and “Confessions in the Dark Night.” The original Wanda movie list is sufficient. Subsequent reserve projects include “Peace and Riot Force” (starring Wang Yibo), “Turning to Flowers” (directed by Jia Ling), “Accidental Killing 3,” and “Finding Her.”

Backed by Tencent resources, the film and game linkage is expected to build a new growth curve. Established in March 2022, Jingxiu Games is a comprehensive game company integrating R&D and operation, dedicated to the development and production of quality content. As an important strategic shareholder of Confucius, Tencent continues to deepen the depth and breadth of cooperation with it, becoming the exclusive Tencent dual-platform strategic partner in the industry, covering more than 800 million users. We believe that in addition to short-term games contributing to new business growth, in the long term, the company is expected to further extend the IP life cycle, explore copyright value, and enhance the company's ability to monetize its film and television intellectual property rights through film and game linkages. Ruyi's 24-year game project reserves are abundant: “Ragnarok: Love Is Like First Seeing” was launched at the end of March, and the civilized genuine IP mobile game “World Qiyuan” (developed by Tencent's Northern Lights Studio), which was distributed by the company, has opened full-platform reservations. Both “Battlefield” and “Wilderness Country” products have obtained version numbers and are expected to be launched within 24 years.

We expect the company's overall revenue for 2024-2025 to be 50.8/6.81 billion yuan, corresponding to a year-on-year growth rate of 40%/34%; adjusted net profit of 12.4/1.63 billion yuan, corresponding to a year-on-year growth rate of 28%/32%. Awarded 20x PE in 2024, with a target market capitalization of $24.8 billion/ HK$2.32, covering the first time, a “buy” rating.