occurrences

On April 29, 2024, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 14.620 billion yuan, an increase of 50.79% over the previous year; net profit to mother was 912 million yuan, after deducting net profit of 719 million yuan, all of which turned a loss into a profit over the previous year.

2024Q1 achieved revenue of 3.821 billion yuan, up 1.70% year on year; net profit to mother of 326 million yuan, up 3.25% year on year; net profit after deducting net income of 307 million yuan, down 15.31% year on year.

Key points of investment

Marketing efforts are being made to accelerate the restoration of cinemas and expand high-quality cinemas to increase market share. In 2023, along with the recovery of the industry, the company increased its online and offline marketing efforts, actively carried out joint brand marketing, held offline-themed marketing activities, upgraded W+ benefits and enriched app/applet marketing activities, boosting the enthusiasm of watching movies and effectively driving the increase in the number of people. Domestic direct-run cinemas achieved box office of 7.56 billion yuan (excluding service fees), recovering to 96.4% in 2019, up from 12.5 pct; the company's cumulative market share recovered to 92.7% in 2019, up from 17.5 pct; the company's cumulative market share 16.7%, maintaining the top position in the industry. Among them, direct-run cinemas had a market share of 15.1%, an increase of 2 pcts over 2019. Single-screen output was 1.85 times the national average, leading the industry in operating efficiency. In 2024, the company will continue to actively expand high-quality direct-run cinemas, focusing on building flagship cinemas in first-tier cities such as Beijing and Shanghai. Relying on a perfect business model, the company's cinema market share is expected to increase further.

Focus on IP operations and derivatives layout to achieve sustainable growth in non-ticket revenue. In terms of the non-ticket business, the company has actively developed its own brands and IP derivatives. Among them, sales of the “Original Xian Yan” Sida series have continued to grow. The Loopy series IP derivatives have achieved deep transformation among fans and brand consumers through Douyin marketing. Non-box office revenue in 2023 increased by more than 10% compared to 2019. In 2024, the company will continue to step up its own product research and development efforts, deepen IP cooperation, and increase non-box office revenue by relying on the company's cinematic positions and new media live streaming matrices. At present, TimeNet and Bubble Mart-Molly have reached an authorized cooperation to launch a new series of Baby-Molly derivatives on the National Wanda Cinemas and Wanda Star Choice Mall. In the future, derivatives will also be developed for the movies “White Snake: Floating” and “Journey to the West”, etc., to continuously enrich the IP derivatives matrix and enhance TimeNet's influence in the industry.

Deepen cooperation with Confucius to unlock content-side growth potential. In 2023, the company mainly invested and controlled 5 films. Among them, the film “The Three Teams” received 700 million yuan in box office. At the same time, the company actively promoted the production of key projects and maintained good long-term cooperative relationships with outstanding creators such as director Chen Sicheng, director Guo Fan, and director Jia Ling. After the release of the 4 series “The Three Teams,” “Thrush,” “Who Is He,” and “The Most Brilliant Us”, which the subsidiary Xinmedia Eslite invested and produced, they all achieved good ratings and investment returns. In 2023, revenue from the film production and distribution business was $334 million, a year-on-year decrease of 12.06%; revenue from the TV drama production and distribution business was $742 million, up 388.51% year-on-year. In 2024, the company cooperated deeply with Ruyi to develop high-quality films and strengthen the key schedule layout using its content-side production experience and resources. Among them, “Peace and Riot Force”, which the company mainly invests and controls, was screened on May 1 and became the May 1st box office winner, with a box office gross of over 400 million yuan. “I Shouldn't Be Your Friends” was scheduled for June 8, “White Snake:

“Fukusheng” is scheduled for August 10, and “Accidental Killing 3,” “A Cloud Is Like You,” “Tricking to Like You,” and “We Live in Nanjing” will also be screened during key dates. In terms of TV dramas, “Legend of Sword and Fairy 4,” “From South to North,” “Tomorrow's Boy,” “Wind Chaser,” and “My Altay” have already been released. “Misplaced Position” and “Sifangkan” are expected to be broadcast within the year, and series such as “Zheng Qingchun,” “The Prosecutor and the Teenager,” and “Confessions at Night” are underway. Overall, in 2024, the company has abundant reserves of high-quality movies and TV series. Combined with the company's upstream and downstream synergies, the content side is expected to contribute to high performance flexibility.

Investment advice:

We expect the company to achieve operating income of 16.4.00/181.79/ 20.03 billion yuan in 24-26, net profit of 14.04/17.13/20.53 billion yuan, and corresponding EPS of 0.64/0.79/0.94 yuan. According to the closing price on May 14, 2024, 24-26 will correspond to 21/18/15 times PE, respectively, and maintain a “buy” rating.

Risk warning:

The risk that the box office in the film market falls short of expectations; the risk of insufficient supply of high-quality films; the risk that market competition increases the risk; the risk that the return on film investment falls short of expectations; and the risk of tightening policy regulations.