Incident: 2024H1, the company achieved operating income of 6.96 billion yuan (YoY +2.46%); net profit to mother of 1.065 billion yuan (YoY -15.45%), mainly affected by changes in preferential corporate income tax policies; deducted non-net profit of 0.912 billion yuan (YoY -22.96%).
Variety shows such as “The Singer 2024” sparked public discussion, and there were sufficient reserves of high-quality content in the second half of the year. In terms of variety shows, on 24H1, Mango TV launched 56 variety shows of various types (including galas and derivative programs), an increase of 17 over the previous year.
According to Yunhe data, 7 programs, including “Big Detective 9,” “Ride the Wind 2024,” and “Flowers and Youth: Silk Road Season”, entered the top 20 effective online variety broadcasts in the first half of 2024. Mango TV ranked first in the industry in terms of effective broadcast volume of variety shows, continuing to consolidate its leading edge in variety shows. Among them, the ratings for each episode of “The Singer 2024” ranked first on provincial TV in the same period, with a total broadcast volume of 158.9 billion times; Mango TV broke 100 million on the first day of 12 consecutive episodes, and the number of hits exceeded 3.8 billion. Key programs for the second half of the year include “Crossing Thorns 4”, “Flowers and Teenagers 6”, “Endless Sound: Hong Kong Music Season 2”, “Flowers Bloom”, and “Dance Wild Flowers”. In terms of series, Mango TV launched 17 movies and TV series, maintaining a relatively stable broadcast rhythm. Among them, “With the Phoenix” led the drama market in the first half of the year. In the future, the company will actively increase its investment in content and reserve more than 80 movies and TV dramas. Key films include “National Color Fanghua”, “People in the Alley”, “Water Dragon Song”, “Brilliant Wind and Sea”, “Long Song”, and “180 Day Restart Plan.” In terms of skits, over the past 24 years, Mango TV has launched the “Mango Short Drama” vertical skit channel. More than 150 vertical screen skits have been launched, and it is expected that no less than 300 fine vertical screen skits will be launched throughout the year.
The revenue of members and operators is growing steadily, and the advertising business is gradually picking up. 1) Members: 24H1 member business revenue 2.486 billion yuan (YoY +27%). Volume: Content-driven membership growth. The launch of popular variety shows and popular series such as “The Singer 2024” boosted the number of members, further confirming the ability of popular content to drive membership growth.
Furthermore, we believe that the company's layout of short dramas complements long dramas, which is expected to further expand the platform audience and increase payment points. Price: Innovate member benefits to increase ARPPU value. Innovate value-added services for members by recording tickets for programs, customized programs for members, rewards, and exclusive benefits for premium members, etc., to enhance users' sense of value and willingness to pay. 2) Advertising: The advertising business revenue was 1.721 billion yuan (YoY -4%), which is further narrower than the full-year decline in '23. On the industry side, according to CTR data, the 24H1 domestic advertising market grew by about 2.7% year on year. Some advertisers are still relatively cautious about releasing marketing budgets, and quality advertising has taken the lead in repairing, and the recovery of brand advertising is lagging behind. We believe that the advertising industry is expected to recover further along with macroeconomic recovery in the future. At the company level, the company effectively consolidates the advertising business market through operational initiatives such as stabilizing the investment budget of leading customers, developing Blue Ocean customers in multiple dimensions, and innovating sales models. Along with the subsequent recovery of the industry, it is expected that the pace of recovery of the advertising business will be accelerated by innovating marketing strategies and optimizing AI algorithms. 3) Carrier: Carrier business revenue 0.75 billion yuan (YoY -46%).
Self-developed the “Mango Big Model” and focused on reducing the cost and efficiency of content production brought about by the implementation of subsequent applications. The company established the “Mountain and Sea Research Institute” and developed its own “Mango Big Model”, which has officially passed the Internet Information Office's filing review. The company's core advantage in developing large models for vertical applications lies in radio and television industry data, program creation experience, etc. Based on the “Mango Big Model”, the company has incubated more than 40 related application products and launched the first AI director “Aimang” in China.
Next, it will 1) build an AI Agent intelligent application platform to promote large-scale model capability coverage for all scenarios such as program creation, advertising, and platform operation; 2) Make a breakthrough in the direction of video generation and apply it to interactive products for micro-drama production and C-side content as soon as possible. We believe AI has the potential to enable some of the key aspects from content production to content monetization. With subsequent iterations of technologies such as AI-generated videos, AI scripts, and AI recommendation algorithms, AI is expected to further help the company reduce costs and increase efficiency.
Profit forecast and investment advice: In 2024-2026, the company's revenue is expected to be 154.42/ 173.27/ 18.532 billion yuan, 5.6%/12.2%/7.0% YoY; net profit to mother 2.039/2.315/2.529 billion yuan, -42.6%/13.5%/9.3% YoY. It is estimated that the year-on-year decline in net profit due to parent in '24 is mainly affected by taxes, but we believe that taxes have little impact on the actual operation of the company. Looking ahead, 1) Mango TV business is expected to continue growing. On the one hand, the film list was rich in the second half of '24, and premium content combined membership activities are expected to help the membership business rise sharply; on the other hand, the advertising business is recovering well. The decline in 24H1 is narrower than in '23, and it is expected to recover further in the future. 2) AI-enabled content production is expected to give the company a long-term growth logic. The “buy” rating is therefore maintained.
Risk warning: advertising recovery falls short of expectations, risk of leaving the core team, risk of artists breaking discipline, increased competition, etc.