Incident: Wanda Film released its 2024 semi-annual performance forecast. It is expected that 2024H1 will achieve net profit of 1 to 0.13 billion yuan, a year-on-year decrease of 69.25% to 76.35%, and a net profit deducted from non-mother of 0.71 to 0.101 billion yuan, a year-on-year decrease of 75.67 to 82.90%. Among them, 2024Q2 is expected to achieve net profit of -2.26 to -0.196 billion yuan, compared to 0.108 billion yuan for the same period last year, and realized net profit without deduction of -2.36 to -0.206 billion yuan, compared to 0.053 billion yuan for the same period last year.

Comment:

The supply of 2024H1 films is insufficient, and the market is sluggish, putting pressure on the company's performance. The 2024Q2 national movie box office was 7.42 billion yuan, down 28.7% year on year, and the number of movie viewers was 0.18 billion, down 31.2% year on year. Except for some popular periods, off-holiday box office was relatively lackluster, mainly due to insufficient supply of high-quality content and weak audience willingness to watch movies. Affected by poor market performance, the company's domestic cinemas achieved box office of 3.13 billion yuan (excluding service fees) in the first half of the year, a year-on-year decrease of 14.5%, and the number of movie viewers was 0.075 billion yuan, a year-on-year decrease of 14.3%. At the same time, due to the overall decline in the overseas film market, the box office revenue of the company's Australian cinema line fell short of expectations, and fixed costs such as operating rent and depreciation of cinemas were high, causing the company's cinema sector to lose money in the second quarter.

Over 100 movies have been scheduled for the summer program, and the market performance is expected to pick up in the second half of the year. According to Lighthouse Pro, 100 movies have been scheduled for the 2024 summer program. Key films such as “Catching the Doll”, “Retrograde Life”, “Decrypt”, “Legend”, “White Snake: Floating”, “Despicable Me 4,” and “Deadpool and Wolverine” are rich in genres and diverse in subject matter. With the continued release on the supply side, the popularity of the market is expected to reignite. In addition, leading films such as “Safe Entry and Exit” and “The Queen of Dumplings” will be screened during the year. Key programs such as the National Day and Lunar New Year programs in the second half of the year are expected to perform well.

The company has a rich film list, and the content side is expected to continue to gain strength. Since this year, the company's content side has continued to gain strength, and the May 1st edition of “Peace and Riot Force” and “Journey through the Moon” are all expected to reap positive returns. In the second half of 2024, the company's film reserves are also quite rich. The participating film “Murder” performed well. The Maze Professional Edition predicted to have grossed more than 1.4 billion. It is expected to be the first film to go over 1 billion at the box office after the Spring Festival. The production and release of the films “Catching the Doll” and “White Snake: Floating” are scheduled for July 16 and August 10. “Under a Stranger” and “Decrypt” will be screened on July 26 and August 3. “Mistaken Killing 3”, “A Cloud Is Like You” and “Deceive” It is also expected to be screened later this year.

Investment advice: The company is expected to achieve operating income of 15.328/17.087/17.941 billion yuan in 2024-2026, up 4.8%/11.5%/5.0% year on year, and achieve net profit of 0.971/1.279/1.471 billion yuan, up 6.4%/31.7%/15.1% year on year. The corresponding PE is 25x/19x/16x, maintaining a “buy” rating.

Risk warning: new business falls short of expectations, industry competition intensifies, box office of key films falls short of expectations