Incident: The company announced its 24-year interim results, achieving revenue of 2.171 billion yuan, a decrease of 1.2% year on year; achieved gross profit of 1.156 billion yuan, up 5.0% year on year, corresponding gross margin of 53.3%, up 3.1 pct year on year; adjusted EBITDA reached 0.49 billion yuan, a decrease of 16.2% year on year; achieved adjusted net profit of 0.352 billion yuan, a decrease of 22.8% year on year, due to an increase in sales expenses due to increased sales expenses.

Comment: The ticketing business continues to grow, and performance ticketing is the core driver. The company's online entertainment ticketing revenue was 1.046 billion yuan (yoy +3.0%), accounting for 48.2% of total revenue. 1) Movie ticketing is steady, and the competitiveness of the industry continues to be consolidated. According to Maogan Pro Edition data, the total box office of 24H1 mainland Chinese films reached 23.903 billion yuan, down 9.0% from the previous year. Mainly due to insufficient film supply since May, the film and television market was under pressure. However, the box office performance of the New Year's Day, Spring Festival, and Qingming movies were all better than in the same period last year. The company strengthens in-depth cooperation with all links in the cinema industry chain, opens up new business scenarios, strengthens platform service capabilities, and enhances multi-platform collaboration.

2) The offline performance market continues to grow. According to the “National Performance Market Development Report for the First Half of 2024”, the box office revenue for commercial performances in the first half of '24 was 19.016 billion yuan, up 13.2% year on year, and audience numbers increased 27.1% year on year. Active participation in local cultural tourism boosted the popularity of the performance industry. The company vigorously promotes leading performing arts collaborations, serving many artists, including Zhang Xueyou, Andy Lau, and Jay Chou. The 24H1 concert and music festival GMV increased about 3 times over the previous year, and the coverage rate of local performances exceeded 95%. At home and abroad, it is actively expanding various regions such as Macau, Southeast Asia, the Middle East, and Latin America, and continues to explore cooperation scenarios.

Revenue from entertainment content services was 1.024 billion yuan (yoy -6.9%), accounting for 47.2% of total revenue. 1) The number of products participating in the distribution continues to increase. 24H1 participated in the distribution and production of 31 films, of which 15 were controlled and distributed. The number of films and box office performance both increased significantly compared to the same period in history. “One Twinkle, One Twinkle, One Shining Star” and “The Annual Meeting Can't Be Stopped!” “Golden Fingers” ranked in the top three of the New Year's Day box office, and “Flying Spurs 2” was the runner-up in the Spring Festival box office with 3.398 billion yuan, continuing the company's strong performance in the Spring Festival program. “Spending Money at the End” and “I Shouldn't Be Friends with You” were the May 1st and Dragon Boat Festival box office winners respectively. Among the top 5 domestic films on 24H1, Maogan Entertainment participated in the distribution and production of 4 movies. 2) The film reserve is rich, and the content continues to be developed. The company has participated in the development of more than 20 projects, with a wide variety of genres and topics. “Murder”, which was screened in the summer program, achieved a box office record of 1.3 billion yuan. In the second half of the year, many high-quality films such as “Crisis Line” and “P Plan” will also be launched, as well as “Sauce Garden Alley” and “Queen of Dumplings”. 3) Continuous technological innovation, AI empowers film and television creation and promotion. The company further promotes the “technology+big data” strategy, independently develops AI-related film and television creation software, and explores the application of AI technology in animation production, visual stories, and promotion products.

Profit forecasting, valuation and ratings: As a leading movie ticketing company, the company's business is strongly correlated with the movie box office performance. Considering the decline in the film and television market in '24, the 24-26 revenue forecast was lowered to 4.6/4.9/5.1 billion yuan (-7%/-8%/-10% compared to the previous forecast); considering the increase in sales expenses due to the increase in film supplements, and the performance of some main control films in the summer program fell short of expectations, and based on conservative predictions about the box office performance of the company's future main control films, we lowered our 24-26 net profit forecast to 0.58/0.74/0.9 billion yuan (compared to the previous forecast -38) %/ -29%/-25%); Maintaining a “buy” rating considering the company's leading position in the ticketing business and strong film selection ability.

Risk warning: The box office of participating films fell short of expectations, demand for movie viewing fell short of expectations, and market competition increased risk.