Core views
The market share of cinemas is steady, and rich industry resources support high participation in content. 1) Cinemas: Although the film market fell short of expectations in the first half of the year, leading to a year-on-year increase in losses in the second quarter, the company's cinemas still had a steady share of the box office market. Cinemas in the sinking market are widely distributed and are still expanding steadily. After being optimistic about the overall supply of movies next year, the company's business situation picked up year on year with the market. 2) Content: In the first half of the year, the company still showed strong industry resource advantages, high participation, and a high success rate. In the first half of the year, 7 films that grossed more than 1 billion participated in 4 of them, driving the subsidiary Hengdian Pictures to achieve profits when the industry fell short of expectations. Continued monitoring of the expansion of online movies, web dramas, and short dramas is expected to bring additional profit increases.
We expect the company to achieve net profit of 0.119/0.232/0.371 billion yuan in 2024-2026, or -28.36%/+95.20%/+60.08% year-on-year. The PE corresponding to the closing price on August 22, 2024 is 58.39/29.91/18.69x.
occurrences
According to the 2024 semi-annual report, during the reporting period, the company achieved operating income of 1.166 billion yuan, a year-on-year decrease of 0.52%; net profit to mother of 0.088 billion yuan, a year-on-year decrease of 21.65%; and net profit after deducting non-return to mother 0.015 billion yuan, a year-on-year decrease of 79.57%.
In the second quarter of 2024, the company achieved operating income of 0.323 billion yuan, a year-on-year decrease of 24.76%; net profit to mother -0.13 billion yuan, a year-on-year decrease of 256.98%; net profit after deducting non-attributable net profit of 0.14 billion yuan, a year-on-year decrease of 124.34%.
Brief review
1. Mid-term dividends are proposed, and the cinema market share is stable. In the second half of the year, content investment will continue to be increased, and mid-term dividends are planned. According to the 2024 mid-term profit distribution plan, the company plans to distribute a cash dividend of 1.20 yuan for every 10 shares to all shareholders. Based on the total share capital of 0.634 billion shares, the total proposed cash dividend will be 76,104,000.00 yuan, accounting for 86.06% of the net profit returned to mother for the first half year of 2024. The dividend plan was reviewed and approved by the board of directors meeting on August 20, and must then be submitted to the shareholders' meeting for consideration.
Cinemas continued to expand, and the market share was stable. Losses in the second quarter fell short of the profit and loss line in a single month at the box office. By the end of the second quarter, the company had 445 asset-based cinemas, a net increase of 13 in the first half of the year; in the second quarter, the box office was 0.242 billion yuan, a year-on-year decrease of 25.26%; the market share was 3.61%, an increase of 0.13pct; and the number of movie viewers was 7.1536 million, a year-on-year decrease of 28.92%. In addition, 84 cinemas joined, a net increase of 2 in the first half of the year; in the second quarter, the box office achieved 0.033 billion yuan, a year-on-year decrease of 29.99%; the market share was 0.49%, which was basically the same; and the number of movie viewers was 0.9309 million, a decrease of 33.11% over the previous year.
In the first half of the year, participation in the company's films was high. In the first half of 2024, Hengdian Pictures, a wholly-owned subsidiary engaged in film investment, production and distribution, achieved a net profit of 0.043 billion yuan. Judging from the film list, the company had a high level of content participation in the first half of the year. It participated in 8 films, including “Flying Fast Life 2,” “When Bears Came: Reversing Time and Space,” “Article 20,” “Let's Shake the Sun Together,” and “The Siege of Kowloon Walled City.” Looking at the summer program, the company participated in 4 movies, including “Murder,” “Welcome to Me,” “Under a Stranger,” and “White Snake: Floating”. As of August 22, out of the 7 films that grossed more than 1 billion in 2024, the company participated in 4 movies, namely “Flying Fast and Furious 2,” “When Bears Go: Reversing Time and Space,” “Article 20,” and “Murder.”
In the first half of the year, the company also increased its investment in content other than movies. The wholly-owned subsidiary film and television production produced the short drama “Qingming River Map, I Am the Person in the Picture”, participated in the production of the web drama “Knights Don't Work”, and promoted online movies such as “The Doll Bride” and “Heishui Ling.”
In the second half of the year, investment in content will continue to be increased to maintain the share of the cinema market. According to the announcement, in the second half of the year, the company will step up content production, investment and distribution efforts to explore online movies, web dramas, and short drama projects; it will also expand crew outreach and production services to explore a new “artist+cultural tourism” cooperation model.
2. Financial analysis
Costs and expenses are rigid and basically stable. In the second quarter of 2024, the company's gross margin was -30.90%, mainly due to a decrease in cinema box office revenue and content investment revenue. In the second quarter, the company's revenue fell 24.76% year on year, but operating costs were rigid due to cinema operations, which only decreased 4.72% year on year. In the second quarter, the company's expenses for the period were 0.037 billion yuan, a year-on-year decrease of 17.78%, mainly due to a decrease in financial expenses, while sales and management expenses were stable.
Investment advice:
The market share of cinemas is steady, and rich industry resources support high participation in content. 1) Cinemas: Although the film market fell short of expectations in the first half of the year, leading to a year-on-year increase in losses in the second quarter, the company's cinemas still had a steady share of the box office market. Cinemas in the sinking market are widely distributed and are still expanding steadily. After being optimistic about the overall supply of movies next year, the company's business situation picked up year on year with the market. 2) Content: In the first half of the year, the company still showed strong industry resource advantages, high participation, and a high success rate. In the first half of the year, 7 films that grossed more than 1 billion participated in 4 of them, driving the subsidiary Hengdian Pictures to achieve profits when the industry fell short of expectations. Continued monitoring of the expansion of online movies, web dramas, and short dramas is expected to bring additional profit increases.
We expect the company to achieve net profit of 0.119/0.232/0.371 billion yuan in 2024-2026, or -28.36%/+95.20%/+60.08% year-on-year. The PE corresponding to the closing price on August 22, 2024 is 58.39/29.91/18.69x.
Risk analysis
Risk of national comprehensive box office falling short of expectations, risk of insufficient supply of overseas films, risk of screenplay killing and competition for other offline entertainment activities, risk of companies not being screened as scheduled, risk of a decline in the company's box office market share, risk that the company's participation in the box office falls short of expectations, risk that the company's projection box office falls short of expectations, risk of not being able to be screened as scheduled due to insufficient filming progress, content regulation risk, content production facing generative AI competition, risk of copyright infringement of movies and TV dramas, and the risk that the film cannot be screened as scheduled due to moral issues with the artists that produce the film The ecological health risks of online content, the risk of insufficient corporate risk identification and management capabilities, and the risk of changes in the aesthetic orientation of users.