Key points of investment

It was the first private enterprise to distribute movies, and the entire industry chain layout expanded its competitive advantage. The company started with film distribution in Hong Kong. It is the first private enterprise engaged in film distribution in China. The business continues to expand upstream and downstream of the industry chain, and obtained the first cinema license after the introduction of relevant policies in 2019. Since then, the company has formed four major businesses: investment, distribution, cinema and cinema. The whole industry chain layout enhances the company's competitive advantage. Upstream investment grasps content, downstream cinemas control channels, and distributors integrate upstream and downstream resources and long-term accumulated experience to further optimize film promotion, making outstanding works “targeted”.

The content reserve is rich, the competitive advantage of the main theme track is obvious, and the layout of the animated circuit is innovative. The company's main theme films have significant advantages. After years of exploration, they have summed up a “new mainstream” film production method that combines the main theme with commercial filming, and launched the three series “China Victory,” “China Pride,” and “Mountain, River, and Sea” in the form of a multi-part series. With 11 main theme films, it has garnered 23 billion yuan in box office, with an average box office of over 2 billion yuan. The main control films “Operation Red Sea”, “Changjin Lake”, and “Changjin Lake's Watergate Bridge” won the 2018/2021/2022 box office championships respectively. The company has mastered the “core assets” of the film and television industry, that is, talents, and has cooperated with many outstanding directors, producers, actors and screenwriters for a long time. On the one hand, the sustainability of cooperation is ensured by signing long-term cooperation agreements; on the other hand, holding shares by film and television artists is beneficial to increasing the loyalty of cooperation. Furthermore, the filming of the company's main theme film was directed by government agencies several times. In the future, the company plans to launch new films every year at the pace of “three major films+three short films”, with sufficient content reserves. The '24 Summer Program includes the sequel “Legend” (scheduled 7/12) and “Dream of the Red Mansion” (scheduled 7/26) to the film “Mythology” starring Jackie Chan. Other important works include “Operation Jiaolong” and “Princess Kashmir”. Also, the company experimented with animated tracks. The film project “Human Warfare” was added. The total investment of the project is 120 million yuan, and the company expects to achieve a return on investment of 31% to 40%.

The AI side is actively exploring, and the company's film “The Legend” uses Deepfake technology and is about to hit the screen. We believe that the architecture upgrade brought about by Sora previously brought opportunities for AI-generated video to be implemented in the field of long video.

The company's exploration and application of AIGC will be at several levels, including content generation for movies and TV dramas, character development for artists, post-film assistance, and IP licensing cooperation. In the late-stage field, AI-enabled film and television is relatively mature, and the company has already implemented applications. In the company's upcoming movie “The Legend,” director Tang Jili and his team used “Deepfake Deep Camouflage” AI technology to restore the appearance of 27-year-old Jackie Chan. In the field of production, the company actively explored, and the AIGC sci-fi short series “Sanxingdui: Apocalypse for the Future” was released. The first season of the drama consists of 12 episodes, co-produced by Douyin, and will be broadcast during the Douyin Short Summer Program.

The company's contrarian expansion is expected to increase its market share to form alpha, and the film and television industry will resume providing beta. By the end of 2023, the company's cinemas had joined 127 theaters, including 101 company-owned cinemas and 26 external participating cinemas, a net increase of 9 over the previous year. In terms of cinemas, the total box office has remained in the top 10 film investment companies for the past 5 years, and the market share has gradually increased, to about 2.09% in 2023. The overall operating efficiency of cinemas owned by Bona Pictures is high.

According to Top 10 box office figures, Bona Cinemas ranked fourth with an average revenue of 685.43 yuan; a single cinema produced 1117.13 yuan, ranking fourth. Furthermore, the pace of “reshuffling” within the industry is accelerating, and the concentration of film casting is gradually increasing. The company bought out a number of cinemas and bucked the trend to expand the basic market of the cinema business. In 2021, it acquired 7 high-end UA cinemas recognized by the industry for 0.14 billion yuan, with an average purchase amount of 20 million yuan.

Profit forecast and investment advice: We expect the company's revenue for 2024-2026 to be 29.76/ 3.667/3.852 billion yuan, respectively, 85.1%/23.2%/5.1% YoY; net profit to mother is 0.306/0.513/0.566 billion yuan, respectively, 155.3%/67.8%/10.3% YoY. “Flying Spur Life 2,” which the company participated in for 24 years, performed well. The summer files “Legend” and “Red Mansion Dream: Golden Jade” have already been scheduled; other key films include “Operation Jiaolong 2” and “Princess Kashmir”, so we think the film investment company is expected to recover significantly. The company is a scarce and high-quality commercial film producer with the main theme in China. It has rich industry resources, first-class production level and accurate positioning of films. At the same time, it is rich in content reserves, which is expected to enhance project stability and performance certainty. Furthermore, AIGC gives the company long-term growth potential. First coverage, giving a “buy” rating.

Risk warning: macroeconomic fluctuations, box office performance falling short of expectations, films not being screened as scheduled, etc.