The 2023 results were largely in line with expectations, and the 1Q24 results were slightly higher than our expectations
The company announced its 2023 and 1Q24 results: revenue for 2023 was 795 million yuan, up 85.1% year on year; net profit to mother was 127 million yuan, turning a year-on-year loss into a profit; deducting non-net profit of 63 million yuan, turning a year-on-year loss into a profit. 1Q24 achieved revenue of 210 million yuan, an increase of 18.3%; net profit attributable to mother was 46.11 million yuan, an increase of 28.2%; after deducting non-net profit of 28.53 million yuan, an increase of 20.8%. The 2023 results were generally in line with expectations; the 1Q24 results were slightly higher than our expectations, mainly due to higher sales revenue than expected, and cost control was more effective. In addition, the company announced that it plans to distribute a cash dividend of 1.14 yuan (tax included) for every 10 shares in 2023, for a total of 51.09 million yuan (tax included), accounting for 40.24% of net profit attributable to mother; the company also expects no less than 40% of net profit due to mother in mid-2024.
Development trends
The main cinema business is developing steadily, and the big IP development business continues to advance. Cinemas: In 2023, the company's directly-managed cinemas achieved a box office of 632 million yuan including service fees, with a year-on-year increase of 129.7%, a market share of 1.17%, and an increase of 0.25ppt over the previous year. The cinema operating efficiency is relatively steady. Among them, Shanghai Cinema SHO actively explores the “cinema+” model of “movie+IP+peripherals+business district”. We believe that the company's innovation in the “Cinema+” business format is expected to increase the space for cinema's economic benefits. Big IP development: The company officially launched the “IP Cinema Cooperation Program” in December 2023 to promote the “IP+ Cinema” business through the deep integration of online and offline methods. Production of the second season of “China's Strange Tan” and the “Summer of the Little Monster” movie, with Shanghai Film Yuan as the main sponsor, has officially begun, and other classic IP film adaptations such as “The Sloppy King” began in November 2023. Furthermore, a gross profit margin of 22.8% was achieved in 2023, a significant increase over the previous year.
Main business operations are improving, and gross margin has increased markedly over the same period last year. The company's 1Q24 gross margin was 30.8%, up 7.2 ppt year over year. The recovery in revenue reflected the leverage effect due to cost rigidity, and the company's cost control was effective. The company's sales expenses rate and management expense ratio are 3.4% and 7.2%, respectively. We judge the company's continuous cost control and promote dynamic optimization, adjustment and dynamic management of cinema assets.
Focus on the potential of Big IP to develop a “second track”. The company said that in the next three years, it will strive to achieve IP cooperation products in 30 industries and more than 500 brands in 5 major fields, and the GMV of cooperative products exceeds 10 billion yuan. In 2024, Shanghai Film Yuan plans to rely on the iNew strategy to carry out IP content renewal and commercial development through multiple channels and forms, and explore the power of AI in various businesses such as content creation and film production. We believe that the company is expected to explore the diversified derivative value of IP based on Shangyingyuan culture and open up a second growth curve.
Profit forecasting and valuation
Due to the rapid growth of the cinema and IP business, we raised our 2024/2025 net profit by 23.6%/23.5% to $162/180 million. The current stock price corresponds to 37.4/32.7 times 2023/2024 EV/EBITDA.
Considering the increase in profit forecasts, maintain a neutral rating, and raise the target price by 19.9% to 28.3 yuan, corresponding to 35.0/34.5 times 2024/2025 EV/EBITDA, with 7% downside.
risks
Movie box office performance exceeded expectations, IP derivative development exceeded expectations, and additional distribution progress exceeded expectations.