Incidents:

On August 29, 2024, Light Media announced the 2024 mid-year report, 2024H1 revenue of 1.334 billion yuan (YOY +120.43%), net profit due to mother 0.473 billion yuan (YOY +133.14%), after deducting non-return net profit of 0.461 billion yuan (YOY +143.90%).

Investment highlights:

2024H1 performance increased year over year.

(1) 2024H1 revenue of 1.334 billion yuan (YOY +120.43%), net profit of 0.473 billion yuan (YOY +133.14%), net profit of 0.461 billion yuan (YOY +143.90%), mainly due to good box office performance such as the main investment control film “Section 20”; non-recurring profit and loss of 11.56 million yuan, mainly government grants of 13.08 million yuan; investment income 15.3 million yuan Yuan (YOY -68.2%), of which investment income from Cat's Eye is 47.75 million yuan (YOY -30.6%). 2024H1 has a net profit margin of 35.47% (+2.06pct year over year), gross margin of 44.41% (+9.23pct year over year), and a period expense ratio of 3.33% (-0.66pct year). Profitability has increased significantly, and cost control is better.

(2) By quarter, 2024Q1/Q2 revenue was 1.07/0.264 billion yuan (YOY +159.33%/+36.99%); net profit to mother 0.425/0.048 billion yuan (YOY +248.01%/-40.33%); net profit without return to mother 0.416/0.045 billion yuan (YOY +252.01%/-36.41%).

Realistic themes are the key direction of live-action movies, and focus on the pace of launch of reserve content.

[Film] 2024H1 films and related derivatives generated revenue of 0.974 billion yuan (YOY +84.34%), gross profit margin of 47.36% (+12.72pct year over year). According to Cat Eye, the total box office of the 4 films “Article 20” and “Fight Black and Never Give Up” invested and distributed by 2024H1 (2023H1 is 5 movies including “Deep Sea” and “So Many Years”). There is a “Section X” series with legal themes, such as “Article 3,” “Article 17,” and “People's Justice”; in addition, many live-action movies such as “Jo Yeon's Heart”, “Holding the Ticket”, “Little” People, “Her Little Pear Vortex”, and “Mordoga” are in preparation.

[TV series] The 2024H1 TV series had revenue of 0.234 billion yuan (2023H1 unconfirmed revenue), with a gross profit margin of 37.72%. “Dali Temple Shaoqing Tour” was launched in 2024Q1, “Jade Saddle” was launched in July, “Mountain and River Pillow” has reached its peak, and preparations for “Spring Dinner” and “My Date List” are underway.

[Artist agents and others] 2024H1 brokerage business revenue 0.126 billion yuan (YOY +64.16%), gross profit margin of 34.08% (-4.78pct year over year). The company attaches importance to the development of directors and other talents, and has formulated the “321 Plan” (training 30 producers, 20 screenwriters, and 10 directors internally). The first phase of the Yangzhou Film and Television Base has been commissioned and put into use.

Light animation talent echelons are being built, reserve projects are abundant, and attention is being paid to medium- to long-term capacity expansion.

(1) 2024H1 participated in the animation “Heavy Rain”, with reserves such as “The Demon Boy in the Three Kingdoms”, “Starry Sky in the Three Kingdoms”, “Big Fish Begonia 2,” “Acacia,” “Inhuman,” and “Zhuolu,” “Journey to the West: The Great Sheng Haunted Tiangong,” “Jiang Ziya 2,” “Tea Ah 2 Middle School 2,” and “Yesterday's Blue Sky 2” are in preparation.

(2) In 2022, Light Animation set up an internal production pipeline, launched the brand Light Animation, focusing on sorting out the “Chinese Mythical Universe”, and is making every effort to promote the animated film “Go to Your Island” (with high AI participation); it is expected that the internal animation production team talent team will be built within the year, and the reserve project will enter a rolling development mode. In the medium to long term, the collaboration between the two major brands, Light Animation & Color Strip House, is expected to drive effective expansion of production capacity.

Profit forecast and investment ratings: We expect revenue for 2024-2026 to be 18.61/26.

0.1/3.007 billion yuan, net profit to mother was 0.65/1.113/1.319 billion yuan, corresponding PE was 31/18/15X. As a leader in the film industry, the company has a multi-brand layout to build a moat and develop the “Chinese Mythical Universe” animation system. Furthermore, AI technology empowers the production of content such as animated films, and is expected to increase the production capacity and industrialization level of the entire industry, such as reducing content costs, increasing efficiency, and improving quality. Based on this, the “buy” rating is maintained.

Risk warning: Risks such as the stricter policy and regulatory environment, the film development process and box office performance falling short of expectations, falling short of expectations, falling short of expectations in the box office market recovery, inventory impairment, insufficient capital, intensifying market competition, declining valuation center, and technology falling short of expectations.