We believe that after the actual controller and management are updated, the company is expected to further collaborate with China's Confucius in the business related to the production and distribution of film and television content; further expand through various methods such as asset-light models in strong business institutions; and focus on IP to empower the sales business and enhance the business's contribution to performance through strong online and offline channel advantages. Furthermore, as a leading cinema company, Wanda Film is expected to fully benefit from the rise in industry prosperity. For the first time, we covered and gave the company a “highly recommended” investment rating.
Content production and promotion are expected to usher in changes after the actual controller and management are changed. The company is the cinema company with the largest market share in China. The company officially completed industrial and commercial changes in 2024. Currently, the direct controlling shareholder is Beijing Wanda Investment, which holds 20.00% of the company's shares. 51% of Wanda Investment's shares are held by Shanghai Ruyi Investment (the actual controller is Mr. Ke Liming, who holds 99% of the shares), and the remaining 49% of the shares are held by Shanghai Ruyi Film and Television Production Co., Ltd. (China Ruyi Holdings Co., Ltd. is controlled by agreement). Since then, the company has formed a close relationship with China's Ruyi and Mr. Ke Liming. There are also promising reasons for the business The new actual controller and China's Confucius took it to the next level: ① The newly appointed actual controller, Mr. Ke Liming, indirectly controls 20% of Wanda Film's shares through Wanda Investment, and is the actual controller of the company. The new actual controller and management have been deeply involved in the film and television content production industry for many years. They have mature investment and production experience, and have invested in works such as “Hello Li Huanying” and “A Little Red Flower for You”. ② Ruyi, the controller of Shanghai, China's Ruyi uses a producer-centered system to guarantee the professionalization and profitability of the company's content production. At the same time, it has a keen eye to discover high-quality directors and works, and continues to create masterpieces. The company is expected to use the new shareholders' advantages in the field of film and television content R&D, production and promotion to share resources and complement each other's advantages, and produce more high-quality works. Furthermore, the transfer agreement avoids the risk of changes in cinema rental costs, grasps the core part of cost management, and preserves the cost advantage of the company's theater business.
The cinema market recovered beyond expectations, and a stable supply of high-quality content was restored. Currently, multi-season box office has repeatedly reached record highs. The supply of high-quality domestic blockbusters in the 2023 summer program is “piling up”, the 2024 Spring Festival program has set a record, and the trend of continuous recovery of good films is clear. Domestic films are shining brightly, and the superposition of overseas films falls short of their historical peak. It is expected to usher in a big year of domestic films, compounding the strong demand for movie viewing by residents, and jointly driving rapid market growth. We believe the film industry is expected to continue to recover. Currently, the pace of domestic cinema construction is slowing down, and new cinemas are sinking. The concentration of cinema leaders is remarkable, and Wanda continues to lead the market share. The market share increased from 13.2% in 2018 to 16.8%, which is expected to fully benefit the industry's recovery. Also, based on the market share of leading overseas cinemas, CR3 for domestic theaters is only 63% of CR3 for overseas theaters, and there is room for further improvement in leading cinemas.
There are collaborations with various Confucian businesses, and an increase in cinema market share can be expected. Wanda Film has been in a leading position in the industry in terms of box office, attendance, and market share for 15 consecutive years. Through business collaboration and complementary advantages between the two sides, Wanda Film is expected to usher in new development opportunities in content production, film promotion, derivative products, and theatrical development. Subsequent companies are expected to continuously improve the output capacity of the content sector. As the production capacity of the content sector increases and cooperation with Confucius deepens, Wanda is expected to further step in the field of publicity and improve the layout of the entire industry chain. In terms of IP derivatives, compared with overseas, there is room for improvement in non-ticket revenue. The development of IP derivatives may be a breakthrough. The company will develop derivatives around popular movies and IP, and use strong online and offline positions to sell. Wanda Film passed the test of the industry's trough, proving its ability to buck the trend and increase its market share. As a leading company to recover first, it is expected to seize the window to expand its market share. Furthermore, the application of AI technology is expected to greatly increase the supply of content in the film industry and have a positive impact on cinema terminals. The company's game business has applied AI technology to the production of advertising materials for game products, and the company also hopes to use AI technology to produce AI images of heroes in traditional Chinese animation.
The first coverage gave it a “Highly Recommended” investment rating. We judge that the domestic film market is expected to grow steadily. As a leading cinema company, the company is expected to fully benefit from the rise in industry prosperity. Furthermore, the company is also expected to further collaborate with China's Confucian intentions in business related to the production and distribution of movies and TV series, complementing each other's advantages. We expect the company to achieve revenue of 160.14/175.75/19.111 billion yuan in 2024/2025/2026, respectively, and achieve net profit of 13.79/16.41/19.118 billion yuan, corresponding to PE 22.0/18.5/15.7 times PE respectively. The company's 2024 PE is lower than the industry average, and for the first time coverage is given a “Highly Recommended” investment rating.
Risk warning: risk of film filing falling short of expectations, risk of video box office falling short of expectations, policy risk, risk of impairment of goodwill, etc.