Matters:
24Q1 achieved revenue of 3.324 billion yuan, YOY +7.21%, net profit attributable to mother of 472 million yuan, YOY -13.85%, net profit after deducting non-attributable net profit of 467 million yuan, YOY -10.4%; profit after excluding 15% income tax, YOY +3%, which is basically in line with expectations. Revenue for the full year of '23 was 14.628 billion yuan, YOY +4.66%, achieving net profit of 3,556 billion yuan, YOY +90.73%, net profit after deducting non-return to mother of 1,695 billion yuan, YOY +5.7%, which is basically in line with the previous performance report. In addition, the company's 2023 annual profit distribution plan proposes to distribute 1.8 yuan (tax included) for every 10 shares, for a total cash dividend of 340 million yuan.
Commentary:
In 23 years, advertising has recovered, and membership growth has accelerated. Split by business, 1) Accelerated membership development: membership revenue in '23 was 4.315 billion yuan, YOY +10.23%, Q4 member revenue YOY +35.76%, and the number of active members reached 66.53 million at the end of the year. 2) Advertising revenue for 23 billion yuan, YOY -11.57%, narrower than 23H1 decline; Q4 advertising revenue YOY +16.13%, which changed the year-on-year growth rate from negative to positive. 3) Steady growth of operators: 23 billion yuan in revenue of 2,767 billion yuan, YOY +10.27%. 4) Golden Eagle Cartoon achieved net profit of 63.4737 million yuan and fulfilled its 2023 performance promise (net profit of not less than 46.25 million yuan). 5) The GMV of Xiaomang e-commerce exceeded 10 billion in 23 years, and the GMV of the self-operated brand “Nanbowan” exceeded 270 million. The company has released over 100 variety shows in 23 years, and has released 128 series of various types, including key movies and TV dramas and the “Big Man Project” short drama.
Q1 Revenue side: It is expected that advertising recovery will be slightly slow, membership business will increase, and operator business will be under pressure in the short term. We expect a slight increase in advertising revenue in Q1, with a slightly slow recovery, mainly due to content distribution+weak macroeconomic recovery; membership business is expected to increase by more than 20% year-on-year, and it is speculated that the main content (the simulcast “With Fengxing” is the most popular in March) + channel cooperation (88VIP+ mobile mango card); operator business is expected to decline slightly under short-term pressure due to policies.
Q1 Profit side: Increased investment in content has led to a decline in the company's profit margin. The company's Q1 gross profit margin was 29%, Yoy-4.34pct. It is estimated that the main reason is an increase in content costs+a slight decline in gross margin operator business share. The rate was slightly optimized. The sales expenses rate was 10.4% year-on-year -1.34pct, and the management and R&D expenses rates were 3.2% and 1.3%, respectively, -0.74 pct/-0.52 pct year over year, respectively. Taken together, the net profit margin was 13.9%, -3.42pct year over year.
Looking forward to the follow-up, Q2 will be rich in content. It is recommended to pay attention to subsequent investment promotion and membership progress. 1) In terms of advertising, according to information from the previous China Merchants Fair, 11 variety shows are expected to be launched in Q2, including the key variety shows “Ride the Wind 2024” (which is expected to be basically the same as last year) and “Singer 2024” (returning again after a lapse of 4 years). It is recommended to actively follow the progress of the investment promotion; 2) Member side: The 24-year series reserve is abundant and channel cooperation continues. The membership business is expected to maintain steady growth throughout the year, and it is expected that TV series breakthroughs will bring more incremental growth. Furthermore, at the end of '23, a strategic cooperation was reached with Douyin, which is expected to contribute to new volume, using the co-creation of skits as a starting point.
Investment advice: The company is rich in 24-year drama reserves; currently, the company is at the bottom of the valuation position. The long-term outlook is good and valuation repair, and it is recommended to pay attention; however, considering the short-term advertising+operator business, we slightly lowered our 24-25 forecast. We expect net profit from 24 to 26 to 26 to be 1,984 million/2,328 million/2,591 billion yuan, respectively (2.21 billion/2.66 billion in 24-25 years, respectively), -44%/17%/11% year-on-year. As a scarce video platform for state-owned enterprises, the company's core business is operating steadily, and new businesses are still being explored. We maintain our previous valuation method. According to the PE valuation in '24, the market value is 59.5 billion yuan, and the target price is 31.8 yuan/share, maintaining a “recommended” rating.
Risk warning: The broadcast situation after the content was launched fell short of expectations, the policy regulation of the industry became stricter, and the pace of project launch was uncertain