24H1 net profit of 0.204 billion yuan to mother, maintaining a “buy” rating

The company released its semi-annual report: 24H1 revenue of 2.122 billion yuan (yoy -25.72%), net profit of 0.204 billion yuan (yoy -43.30%), deducting non-net profit of 0.162 billion yuan (yoy -49.87%). The decline in performance was mainly due to the weak Q2 film market. Considering this and the delay in the release of some of the company's films compared to our previous forecast, we adjusted the 24-26 net profit to 5.65/10/10.36 (previous value 8.12/8.98/9.93) billion yuan. Considering that the industry was under pressure in 24 years due mainly to the short-term lack of high-quality content supply, we expect a gradual recovery after 25 years. Based on the valuation, the 25-year comparable company Wind agreed that the PE average value was 15X. Consider the company as the leader in the layout of the entire film industry chain, giving a 25-year valuation PE 20X, corresponding to the target price 10.8 (previous value 12.9) yuan.

The poor performance of the film market led to the same decline in the company's revenue

The 24H1 film market did not perform well. According to the semi-annual report, the national movie box office was 23.8 billion yuan, down 9.51%.

Affected by this, all of the company's major businesses experienced a year-on-year decline. Among them: 1) revenue from the creative sector was 0.279 billion yuan, down 57.6%; the company led or participated in and screened 18 movies (23H1 was 20); 2) revenue from the distribution business was 0.898 billion yuan, down 29.8% from the same period. However, the market share of the distribution business increased steadily. The company distributed a total of 354 films, achieving a box office of 18.885 billion yuan, accounting for 87.76% of the country's total box office (23H1 was 85.15%); 3) The revenue from the screening business was 0.474 billion yuan, a decrease of 11.6%. By the end of 24H1, the company's controlled and owned cinemas covered a total of 23,399 screens across the country, with a screen market share of 29.9%.

Affected by the industry, comprehensive gross margin declined, and the overall cost ratio was stabilized. Based on changes in the economic conditions of the industry and customers, 24H1 prepared an impairment of about 0.058 billion yuan for accounts receivable, etc. After excluding this impact, net profit to the mother was 0.262 billion yuan, down 27% from 23H1. 24H1's comprehensive gross profit margin was 25.93%, down 1.65pct. Mainly due to poor performance in the film market, the gross margin of the creative and screening business fell 9/11.6pct to 11.3%/3.6%, respectively. The gross margin of the distribution business increased by 4.6 pct to 37.2%. The 24H1 sales/management/ development/ finance rate was 2.87%/10.26%/1.04%/-2.81%, compared with 0.64/2.82/0.24/-1.5pct, which is generally stable. Among them, the increase in the management cost ratio is mainly due to an increase in maintenance costs.

There are plenty of projects to be screened, and “Legend of the Hero Conqueror” and “Volunteer Army 2” are expected to contribute to flexible performance. The company will focus on key themes in recent years, increase original development efforts, promote the “Chinese Film Young Filmmaker Program”, and coordinate resources to create quality products, thus promoting the improvement of both scale and quality of creation, and driving the rapid development of the creative business. Among the Spring Festival movies in '24, the films “Hot and Hot”, “Speeding Life 2”, “Bears Go: Reversing Time and Space”, and “Article 20,” which the company participated in the production, ranked in the top four of the Spring Festival box office rankings. Currently, the company has many projects awaiting screening and creative development, including “Volunteer Army 2” and “Legend of the Condor Heroes: The Legend of the Knight”, which are expected to contribute to flexible performance in the future.

Risk warning: Movie box office falls short of expectations, content regulation risks, and the supply of imported films falls short of expectations.