Core views

The company released its 2024 semi-annual report. We believe that it focuses on a few key points:

1. Member revenue increased by more than 25%, driven by volume and price: membership revenue in the first half of the year was 2.486 billion yuan, +26.8%, a record high in 21 years, accounting for more than 50% of Internet video revenue; this year, high-quality dramas such as “The Singer” and “With Fengxing” continued to drive membership growth, and ARPPU increased simultaneously under the differentiated operation of member rights.

2. Content investment insists on “practicing hard work” and is optimistic about improving drama capacity for a long time: the company increased its content investment. The amortization of intangible assets in the first half of the year was 28.2.5 billion yuan, an increase of 15% over the previous year, which had an impact on profit margins in the short term. However, the company continued to practice hard work on the series, which is expected to improve the series capacity to drive membership growth. We look forward to Yang Zili's “National Color Fanghua” and “Water Dragon Yin” being broadcast online.

Operators affect profits in the short term, but big screen governance favors the licensee in the long run. Operators' business revenue fell 46% in the first half of the year, mainly due to the indirect impact of the regulation of large TV screens. Also, since the gross margin of this business is high, its impact on profits is more significant. However, in the medium to long term, Mango, as the only company with both IPTV and OTT licenses, is expected to benefit from the healthy and standardized development of the industry.

We expect that in 2024-2026, the company will achieve net profit of 1.791 billion, 2.104 billion, and 2.418 billion, with year-on-year increases of -49.6%, 17.5%, and 14.9%. The latest market value corresponds to the current price-earnings ratio of 19.6x, 16.7x, and 14.6x, giving a buying rating.

Investment advice: The company's membership revenue increased by more than 25% in the first half of the year, driven by volume and price, and membership revenue has become the most important source of revenue, accounting for more than 50% of the Internet video business. The operator's business is affected by big screen governance, which affects profits in the short term, but in the long run it favors formal licensing parties. We think this is a short-term impact. Looking at the long-term, the company insists on “practicing hard work” in content investment. In the first half of the year, the amortization of intangible assets was 2.825 billion yuan, an increase of 15% over the previous year, which had an impact on profit margins in the short term, but in the long term, it will improve series capacity, thereby driving membership growth. We look forward to Yang Zi Li Xian's leading series such as “National Color Fanghua” and “Water Dragon Yin” being broadcast online. We expect that in 2024-2026, the company will achieve net profit of 1.791 billion, 2.104 billion, and 2.418 billion, a year-on-year increase of -49.6%, 17.5%, and 14.9%. The latest market value corresponds to the current price-earnings ratio of 19.6x, 16.7x, and 14.6x, giving a buying rating.

Risk warning: Advertisers' business recovery falls short of expectations, risk of macroeconomic fluctuations, consumption recovery falls short of expectations, brand advertising falls short of expectations, risk of declining user disposable income, risk of rapid changes in user content preferences, failure to improve episode capacity as expected, risk of falling user payment capacity, risk of falling number of members due to price increases, risk of falling number of members, risk of falling performance of leading programs, risk of falling short of expectations, risk of IPTV user growth falling short of expectations, risk of rising content costs, loss of core creatives, The risk that the ROI of some projects falls short of expectations; the risk that industry competition increases; the risk that generative AI technology development falls short of expectations; the risk that technology integration in various fields falls short of expectations; the risk of delays in key projects; and the risk of content review and supervision.