Shanghai Film's “Film Distribution and Screening+Big IP Development and Operation” is a two-wheel drive. The film distribution and screening business has built a steady basic market for the company. At the same time, under the renewal of IP content and authorized operation, the company's big IP development business will become the second growth pole, contributing to the increase. Covered for the first time, a “gain” rating was given.

With the scarce domestic art IP and the rise of the national trend, IP+AI opens up room for growth. After more than 100 years of development, the domestic animation industry has risen, and audiences have reached all age groups. Corresponding to this, the total output value of Chinese animation has steadily increased. Shangmei Film inherits the “Chinese School”, combines Chinese traditions and contemporary values, gives traditional Chinese comic IP a new era connotation, and invigorates content creation represented by “China Qitan” in a new era. The company acquired 51% of Shanghai Film Company's shares in May '23, obtained operating copyrights for 60 classic animation and live action film IPs, and is gradually establishing a big IP development model with IP content renewal, commercial licensing, and new technology. In February of this year, the company proposed the “iNew” strategy to enable AI to improve IP development efficiency, and plans to develop 2 new content works every year in the future. “Little Monster's Summer: Once Upon a Time There Was a Mountain Langlang” will be screened in the summer of '25.

The SFC region has significant advantages, and the film distribution business is expected to grow. According to Cat's Eye Movie Pro, the national box office increased 83% year on year in '23. Among them, first-tier cities grew 104% year over year, and the pace of restoration was faster. The company's directly-managed SFC cinema has regional advantages. With Shanghai as its anchor radiating the core area of Tier 1 and 2 cities, the average box office performance of a single cinema is more than double the industry average. Shanghai is the largest studio for imported films. Imported movies accounted for 16.23% of the box office in the Chinese film market in '23, far below the level of 30%-40% before the pandemic. We expect that with the gradual recovery of the domestic film market and the recovery in the supply and demand for imported films, the company's film screening business will continue to outperform the industry average. At the same time, in the future, the company will rely on the Group's resource advantages to increase the depth and breadth of participation in leading projects and increase investment in distribution business.

Profit forecast and investment advice: We expect the company's net profit to be 2.02/3.17/433 million yuan for 24-26, YoY +59.1%/56.9%/36.6%, respectively. Considering the company's scarce domestic art IP resources and high growth rate, it was covered for the first time and gave it an “increase in weight” rating.

Risk warning: IP commercialization performance falls short of expectations; box office performance falls short of expectations; market competition intensifies