Core views
We are optimistic about the company from two aspects:
1) The number of summer mainstreamed players was higher than the same year, with over 7 movies in reserve. Many of the films are of excellent quality, including “Succession Plan,” “Declassified,” “Going Alone,” and “Murder.” Optimistic about the release of major products will drive the recovery of the entertainment content business in the second half of the year; 2) The ticketing business is expected to perform steadily. For movie ticketing, although supply was heavy in January-May, demand for watching movies was resilient, and I am optimistic that the summer season will be a major release to stimulate a recovery in demand; for live show ticketing, the market achieved high growth at the beginning of last year.
We expect the company's net profit to be 967/10.82/1,191 million yuan in 2024-2026, up 6.27%/11.84%/10.10% year-on-year, and the PE corresponding to the closing price on June 14, 2024 is 9.69/8.66/7.87x.
Brief review
We are optimistic about the company from two aspects: 1) the company reserves a number of main and participating movies that are expected to be screened during the summer, and product releases are expected to drive the recovery of the entertainment content business; 2) Looking at the ticketing business, on the one hand, the movie market is resilient in the first half of the year, and on the other hand, the live performance market is still growing at a high rate in terms of the number of shows and average ticket prices.
1. The number of summer movies released by the company was higher compared to the same year, and the quality of many films was excellent. Looking back at the summer of 2023, 3 of which achieved over 100 million box office sales, including “Fengshen Part 1,” “In the Octagonal Cage,” and “School Dad”. The overall box office was 26.36/22.08/614 million yuan, ranking 3/4/9 of the summer program respectively.
Looking ahead to the summer of 2024, the company produced and participated in more films compared to the same period. In mid-June, the company released a summer reserve movie poster. It was announced that 6 main movies will be screened in June-August, including the comedy “Succession Plan” starring Shen Teng and Ma Li, the suspense film “Demystified” directed by Chen Sicheng, the new film “Murder” directed by the popular series “Murder”, the company's main animation “Umbrella Girl”, and “Rebirth” and “Scales Against the Scales.” In addition, it is expected that Li Na's biography “On the Stage Alone”, sponsored by the company and directed by Chen Kexin, will also be screened during the summer. The reserve reserves of more than 7 units are higher in volume compared to last year.
At the same time, many mainline movies already have a certain fan base and are expected to have good box office performance. For example, Shen Teng and Ma Li, who starred in “The Succession Plan,” are national comedians, and the film is a similarly themed remake of the previous film “The Richest Man in Xihong City” by directors Yan Fei and Peng Damao. The remake of the hit movie combined with national comedians is expected to be high at the box office. Furthermore, Chen Sicheng, the director of “Declassified,” has previously had a number of high-grossing suspense or detective movies, such as the “Chinatown Detective” series and “The Girl Who Disappeared,” and has a certain fan base. Cowinley, the director of “Murder,” has directed the hit crime film series “Murderous Killing”. Series 1 and 2 both received over 1 billion dollars in the New Year's Eve program. “Murder” is also a similar criminal theme. The director has extensive experience, and is expected to be a good box-office. Judging from box office expectations, most of the main movies are currently expected to be the top movies in the summer program.
As a result, the company released more main movies in the summer compared to the same period, and many of them are at the top of box office expectations. We are optimistic that the release of the company's products will drive the recovery of the company's entertainment content business. Currently, many movies are still unscheduled, but recently the speed of scheduling in the industry has accelerated. In particular, the Shanghai Film Festival will open on the 14th, and it is expected that the company's reserves will also be scheduled one after another.
2. Ticketing business: Demand for movie viewing is resilient. Live shows achieved high growth under a low base. Judging from the movie ticketing business, overall demand was resilient in the first half of the year. The decline in the national comprehensive box office from January to May 2024 was mainly affected by the decline in average ticket prices. The decline in the number of moviegoers was less than ticket prices. From January to May, the national comprehensive box office was 21.672 billion yuan, a year-on-year decrease of 2.09%. Among them, the average ticket price was 43.78 yuan, down 1.49% year on year, while the number of movie viewers only decreased by 0.60% year on year to 495 million. However, the decline is expected in June. The number of movie viewers in June 2023 was 105 million, while as of June 13, 2024, the number of movie viewers was 24 million.
Overall, since Cat's ticketing business charges a service fee of 3 yuan per ticket based on ticket volume, which has nothing to do with ticket prices, the decline in the movie ticketing business in the first half of the year is expected to be less than that of the national comprehensive movie box office. Looking ahead to the second half of the year, as the supply of summer blockbusters recovers, resilient demand is expected to be effectively driven, and the number of movie viewers will improve in the second half of the year.
Looking at the live performance market, both the number of performances and average ticket prices in the first half of the year still achieved high growth under a low base. 1) Number of performances: According to the Lighthouse App, the total number of music performances from January to May 2024 reached 9,581, an increase of 141.52% over the previous year. It is estimated that the first half of last year is still recovering from the pandemic, so the first half of this year achieved high growth under a low base. 2) Average ticket price: Ticket prices fluctuated greatly in the first half of 2023. It is expected to be normal performance in the early stages of market recovery. According to the Lighthouse App, from January to June 2023, the average ticket price for live shows was 496.93 yuan, while from January to May 2024, the average ticket price for live shows was 615.98 yuan, an increase of 23.96%.
In the first half of the year, the company represented concerts by artists including Chen Yixun, Zhang Xueyou, Tsai Yilin, and Zhou Shen, as well as sporting events such as the CBA. It is expected that in the first half of the year, live performance ticketing will continue to grow at the same high rate as the industry, partially making up for the year-on-year decline in the movie ticketing business.
Investment advice:
We are optimistic about the company from two aspects:
1) The number of summer mainstreamed players was higher than the same year, with over 7 movies in reserve, and many of the films were of excellent quality, including “Succession Plan,” “Declassified,” “Going Alone,” and “Murder.” Optimistic about the release of major products will drive the recovery of the entertainment content business in the second half of the year; 2) The ticketing business is expected to perform steadily. For movie ticketing, although supply was heavy in January-May, demand for watching movies was resilient, and I am optimistic that the summer season will be a major release to stimulate a recovery in demand; for live show ticketing, the market achieved high growth under a low base at the beginning of last year.
We expect the company's net profit to be 99/10.82/1,191 million yuan in 2024-2026, up 6.27%/11.84%/10.10% year over year, and PE corresponding to the closing price on June 14, 2024 is 9.69/8.66/7.87x.
Risk analysis
The risk of a film falling short of expectations at the box office, the risk of a film not being released as scheduled, the risk of not being screened as scheduled due to insufficient filming progress, the risk of content regulation, the risk of increasing the difficulty of supervision, the risk of increased competition from channels such as Douyin and other theater-owned platforms, the risk of developing generative AI technology falling short of expectations, risk of technological monopoly risk, risk of inadequate laws and regulations related to generative AI, risk of falling short of expectations, copyright ownership risk, risk of deep fraud, risks affecting the health and safety of Internet content ecosystems, enterprises The risk of insufficient risk identification and management capabilities, and the risk of changes in the user's aesthetic orientation.