Starting with film distribution, the company has completed the layout of the entire film industry chain after 20 years. Bona Pictures was founded in 1999. The company's business covers the entire film industry chain, including film and television investment, distribution, theaters, and cinemas. The company has produced more than 300 films, with a total box office gross of more than 60 billion yuan. It has produced high-quality films such as “Changjin Lake” and “Operation Red Sea”, which occupy 3 places in the top 15 box office in Chinese film history. Performance in 2023 was impacted by the box office falling short of expectations for the main feature film, which achieved revenue of 1,608 million yuan (yoy -20.06%) and a net loss of 553 million yuan (yoy -631.86%). 2024Q1 has already turned a loss into a profit driven by the box office for the participating film “Flying Spur Life 2”, and the release performance of subsequent projects is expected to continue to grow.

The general market of the industry continues to recover, and the supply of high-quality content is abundant. In 2023, the total domestic box office reached 49.936 billion yuan (yoy +83%), recovering to 84% in 2019. The recognition of high-quality Chinese films continued to rise. The top 10 domestic films in 2023 were all domestic films, and the annual domestic film box office reached 41.8 billion yuan (yoy +81%), an increase of 10% over 2019, accounting for 83.80%. Since 2023, the box office has repeatedly reached new highs. This is reflected in the fact that with the support of high-quality content, consumer demand for watching movies is strong and resilient. Since then, with the continuous increase in high-quality supply at home and abroad, I am optimistic about the long-term steady growth of the total box office.

Consolidate the main theme of commercialization and explore diverse film genres. 1) Investment business: The company is rich in industry resources, has long-term cooperation with outstanding directors such as Tang Jili, Xu Ke, Cao Baoping, and Han Han, and has a strong ability to continuously produce high-quality films.

From 2014 to 2023, the company sponsored 15 films that grossed over 100 million yuan, achieving cumulative box office revenue of 26.073 billion yuan, and a double boom in box office reviews. As consumers' ability to appreciate movies increases, demand for watching movies tends to diversify. The company follows industry trends and explores multiple film genres such as suspense and romance on the basis of consolidating the main theme themes to help produce diverse content for the “Three Three Three Little Three Series”. The main themes prepared by the company include the movies “Operation Jiaolong”, “Princess Kashmir” (all scheduled for 2025), etc.; preparations for various types of movies include “Legend” in the costume category “Legend” (“Myth” sequel, scheduled for 2024 summer), commercial warfare “The Wolf of the Stock Market”, “The Wolf of the Stock Market”, the tomb raiding category “The Big Case of Hongshan”, the animated series “Human Battle”, and the sci-fi “Sanxingdui: Apocalypse of the Future” are being actively promoted. “Emotional Suspense Trilogy” “Time to Hunt” (expected to launch in 2024), historical “Prime Minister Lin Zexu”, etc.; participating in external films include “Avatar 3” and “Deadpool 3.”

Subsequent high-quality reserves are abundant, which is expected to guarantee the company's performance in 2024-2026. 2) Distribution business: The company has been deeply involved in the distribution market for many years. In 2017-2023, the company distributed a total of 50 major films, with total box office revenue exceeding 29.7 billion yuan, buyout/guarantee distribution of 15 major films, with total box office revenue of 3.15 billion yuan. The high-margin distribution business is expected to continue to contribute to cash flow. 3) Cinema and cinema line business: The company's ranking among film investment companies has always remained in the top ten in the industry, and its market share has steadily increased, reaching 2.21% in 2023. Since 2024Q1, the cinema business has turned a loss into a profit. The cinema expansion plan is progressing steadily, and full-year performance growth can be expected.

Aim at the pain points of AI film and television and accelerate the transformation to a technology-based film and television enterprise. Existing AI+ film and television technology has problems such as the difficulty of generating character faces and the lack of stability and continuity in generating images. In response to industry pain points, the company focuses on two AI directions: 1) AI-assisted film and television art expression: the company combined Deepfake technology in the reserve film “Legend” to reproduce the young image of actor Jackie Chan through model deep learning to achieve emotional expressions that are difficult for digital people to capture during difficult martial arts movements, and achieve AI technology's first breakthrough on the big screen; 2) AI long video generation: The company has set up an AI studio and launched The AI sci-fi short drama “Sanxingdui: Future Apocalypse” has a total of two seasons, with 12 episodes each. The filing has now been completed. The subsequent company will build an AI film and television eco-city and expand businesses such as digital star and virtual character IP performance operations.

Investment advice: The film and television industry continues to pick up. While consolidating the advantages of the main theme, the company is actively exploring new directions of diversified content. The company is expected to achieve net profit of 2.9/4.8/580 million yuan in 2024-2026, with a year-on-year growth rate of 152.8%/66.1%/19.8%. For the first time, coverage was given a “buy” rating.

Risk warning: Movie box office falls short of expectations, industry regulation intensifies, and operating performance fluctuates seasonally.