Company Overview: Representative of digital cultural content pioneers, diversified exploration of IP value. With the rapid development of technology with AI at the cutting edge and the deepening of globalization, Chinese Online continues to promote the deep integration of culture and technology with “consolidating content, winning IP, international priority, and AI empowerment” as the development direction, involving digital content production, copyright distribution and sales, IP derivation and intellectual property protection, etc., and comprehensively lays out the digital cultural content industry. Through business adjustments, the company focused on the development of the cultural industry to reduce the burden on the business and improve operations markedly. In 2023, the company's revenue reached 1.41 billion yuan, an increase of 19.4% over the previous year.
Industry analysis: Digital reading is growing steadily, AI empowers IP value mining, and there is broad space for overseas pan-entertainment.
The scale of digital reading is growing steadily, user payment habits are mature, and the business ecology is good. Furthermore, AI empowers the development of the entire IP ecosystem, helps unleash commercial value, and the value of IP adaptation is highlighted. In the overseas business sector, demand for overseas pan-entertainment is strong, and the short drama market space is broad, and instant payment quickly forms a closed loop in the short drama business.
Business analysis: The digital content ecosystem works well, embraces AI, and unleashes value with diverse operating IPs.
The advantages of content are obvious, and the digital content ecosystem is working well. The company has rich content reserves, forming a multi-dimensional content platform matrix.
In addition, the company continues to deepen cooperation with leading platforms, broaden digital content cooperation channels, enhance sales capabilities, and focus on cultivating creators and protecting rights and interests, and has a strong content reserve.
Actively embrace AI technology to unlock value in IP operations. Based on the advantages of digital resources, the company has actively carried out technology construction and commercialization in AI models and AI multi-modality (covering text, audio, image, etc.), which helps consolidate and strengthen the company's existing content and IP operation advantages. The company's IP copyright derivation business is centered on literary IP and focuses on building a creative model of “Internet text serialization+simultaneous IP derivation development”. It already has a mature IP full-mode development and operation model. With the support of AI technology, it is expected to extend the IP life cycle more effectively and broaden IP monetization channels.
Continue to expand overseas content fields and build a diverse product matrix. Overseas shareholding companies have stable CMS revenue and continue to focus on changes in the new reading needs of overseas users. They have successively launched the interactive visual reading platform ReelShort, the romantic novel platform Kiss, and the live action short drama ReelShort, forming a diversified, visual, and interactive product matrix, which can meet user needs in a variety of ways and accelerate the company's penetration rate in overseas markets. Among them, ReelShort made full use of the advantages of IP+ localization operation and independently undertook the operation of the entire production process of skit, and performed excellently.
Profit forecast, valuation and investment rating: We expect ChineseOnline's revenue for 2024-2026 to be $1,465/16.27/18.15 billion, respectively, up 3.98%/11.10%/11.54% year-on-year, respectively. Net profit due to mother for 2024-2026 is expected to be 1.32/1.78/240 million yuan, respectively, up 48.06%/34.16%/35.28% year-on-year, respectively, and corresponding PE valuations are 128.3x/95.6x/70.7x, respectively. We selected companies that are also involved in IP development licensing as comparable targets, including Palm Reading Technology, Aofei Entertainment, and Shanghai Film. Zhangyue Technology has accumulated rich IP resources in the field of digital reading and continues to expand IP-centered video content production, production and operation; Aofei Entertainment is committed to building an “IP+ full industry chain” operation platform integrating animation, film, licensing, etc.; Shanghai Film has entered the big IP development business and is actively expanding in the fields of classic IP content renewal, game linkage and licensing. The above companies are all well comparable to the Chinese online IP development and licensing business. Refer to comparable companies in the same industry. Considering that the company has obvious advantages in digital content, actively embraces AI, has a mature IP operation model, and is expected to open up room for performance growth, it is reasonable to give it a certain valuation premium. It is recommended to continue to pay attention, cover it for the first time, and give it an increase rating.
Risk warning: Policy risks on the cultural supervisory side; AI technology development falls short of expectations; industry competition increases risk; risk that the information data used in research reports is not updated in a timely manner.