Incident: Haijian Co., Ltd. released its 2023 annual report and 2024 quarterly report. The company's total revenue in 2023 was 992 million yuan, a decrease of 2.8%; net profit to mother was 410 million yuan, a decrease of 1.0%; net profit after deducting non-return to mother was 370 million yuan, a decrease of 0.9%. 2024Q1's revenue was 243 million yuan, up 0.5%; net profit from the profit side to mother was 109 million yuan, up 1.6%; net profit after deducting non-return to mother was 97 million yuan, up 0.4% from the same period.

Comment: Generous total dividends, steady performance in the main business, actively lays out new audiovisual formats for short dramas, and explores AI technology to empower them? 1) The total amount of dividends is generous. The company plans to distribute a total of 430 million yuan in cash dividends in 2023, with a proposed dividend ratio of 106.0%, accounting for 44.0% of the distributable profit at the end of 2023.

2) Strong foundation, steady performance in the main business. In terms of IPTV business, in 2023, the company's IPTV basic business achieved revenue of 790 million yuan, a year-on-year decrease of 2.1%, and a gross profit margin of 55.0%, an increase of 2.1 pct; IPTV value-added business revenue was 160 million yuan, a decrease of 3.5% year on year, and a gross profit margin of 58.9%, an increase of 0.2 pct year on year. The overall IPTV business of the company is stable. In accordance with the basic principle of “stabilizing the basic market and digging deeper into value-added volume”, and in response to the requirements of the General Administration, the TV screen service was optimized to achieve default viewing of live broadcasts. The number of effective users in the basic business reached 16.714 million; the billing points were reduced to 6 more than 20 charging packages for value-added services, effectively improving the “sleeping baby” charging phenomenon. At the same time, the company continues to innovate product supply, launch a large-screen short video project, and channel it into value-added business through “short band length”.

3) Actively lay out new audiovisual formats for short dramas, and fully develop diversified innovative businesses. In terms of the new audiovisual business format, the company has built a complete operating link for short short drama projects, including platform, content, review, operation, distribution, and business. In 2023, 224 short dramas were reviewed, more than 18,000 episodes, and more than 90 short dramas were launched. At the same time, the company collaborated with the Qingdao West Coast New Area and Qingdao Sunac to actively promote the launch of the Northern Short Drama Film and Television Base (Zangma Mountain) to build a local boutique short drama film and television brand in Shandong. In terms of other innovative business, the company launched the pet service mobile application “Sea View Pet App” to create an online pet internet hospital to solve pet health and maintenance problems.

4) Explore the power of AI technology, and the efficiency of content review can be expected to improve. The company has set up a special Haijian AI laboratory to actively explore the development and application of AI technology in the fields of image restoration, text creation, image generation, film and television production, and safe operation and maintenance. In terms of content review, the company's self-developed AI intelligent review system has four intelligent review models for images, faces, voices, and text. The comprehensive recognition rate of Chinese characters, images, etc. exceeds 90%. It has built one of the largest libraries of illegal content materials in the country, which can effectively improve the efficiency and accuracy of content review.

5) Steadily control expenses, and keep the cost rate stable. The company's sales, management and R&D expenses rates in 2023 were 1.5%, 6.6%, and 4.9%, respectively, with a year-on-year increase of +0.3/+1.1/+0.7pct, respectively. The company's 2024Q1 sales, management and R&D expenses rates were 1.2%, 5.3%, and 4.1%, respectively, with year-on-year increases of -0.1/-0.2/-0.1 pct, respectively.

Profit forecast and valuation: Considering that the company's 2023 performance is in line with expectations, and that the State Administration of Radio, Film and Television has regulated and rectified the Internet TV business with illegal live TV broadcasts, which is expected to increase the company's IPTV business start-up rate and content reach, we have adjusted the company's performance expectations appropriately. It is estimated that the operating revenue of Haiview Co., Ltd. in 2024-2026 will be 10.86/11.97/1,328 billion yuan, respectively (the value before revenue for 2024-2025 was 1,060/1,171 billion yuan, respectively), up 9.43% year-on-year, respectively. 10.25% and 10.93%; net profit to mother was RMB4.55/ 505/565 million, respectively (the previous value of net profit to mother was RMB4.16/454 million yuan in 2024-2025), with year-on-year increases of 10.91%, 11.01%, and 11.90%, respectively.

The valuation of the company corresponding to the current market value is 24.4x, 21.9x, and 19.6x, respectively, maintaining the “gain” rating.

Risk warning events: policy risks on the cultural supervisory side; risk of IPTV user growth falling short of expectations; risk of high customer concentration; risk of untimely updating of information data used in research reports.