Incidents:

On August 27, the company announced 2024H1 results, with revenue of 0.193 billion yuan (YOY -54.4%) and adjusted net profit of -49.412 million yuan (YOY -135.6%).

Investment highlights:

Due to the impact of platform broadcasts, performance is under pressure in the short term.

2024H1 had revenue of 0.193 billion yuan (YOY -54.4%) and adjusted net profit of -49.412 million yuan (YOY -135.6%). The main reason was that the broadcast time of the series was delayed due to platform broadcasting, which affected the pace of revenue confirmation; 2024H1 broadcast 1 episode 36 episodes, while 2023H1 broadcast 1 episode of 38 episodes. 2024H1 gross profit margin 22.4% (YoY -27.3pct), adjusted net profit margin -25.7% (2023H1 32.9%); sales/management expenses ratio 18.34%/51.43% (YoY +10.57/+30.78pct), mainly due to the rapid development of the company's new businesses such as short dramas, and corresponding increases in advertising expenses, compensation and benefits, office expenses, etc. As of the end of 2024H1, the company's cash and cash equivalents were $0.975 billion ($0.716 billion at the end of 2023), with sufficient cash.

Copyright dramas focus on developing quality series, and overseas business continues to grow rapidly.

(1) Focus on developing quality series. The 2024H1 copyright drama “You Too” was broadcast, and 3 new copyrighted drama projects (“The Night Returns”, “An Illustrated Guide to Crime Hunting 2”, and “A Dream in the Book”) have all been pre-sold. Among them, “The Night Returns” and “The Hunting Guide 2” have already been released; in addition, “Handicapped Men and Women” is in reserve for broadcast.

(2) Overseas business continues to grow rapidly. 2024H1's overseas revenue was 13.36 million yuan (YOY +92.5%). The copyrighted drama “You Too Today” was launched simultaneously on many leading overseas platforms such as Viu, TRUEID, and YouTube, covering more than 200 countries and regions; “One Mind Guanshan” continues to expand overseas distribution areas. Furthermore, overseas remake of Ning Meng's IP was promoted, “Just Thirty: Bangkok Edition” was successfully completed, and production of overseas projects such as the Thai edition of “Illustrated Guide to Crime” was promoted.

(3) Steady development of content marketing. 2024H1 has achieved a total business cooperation contract amount of more than 60 million yuan, and several brands have signed more than 10 million yuan. The company actively expands external investment agents and expands media resources for leading series according to customer customization needs.

Domestic skits and overseas skits go hand in hand to rapidly increase the scale of production capacity.

2024H1 is deeply involved in the skit circuit, accelerated the development of domestic and overseas double skit platforms, and actively expanded production capacity. The cumulative time to launch skit was over 2,000 minutes.

[Domestic short drama] 2024H1 is expanding the domestic skit format, further extending it to a paid skit model on the basis of strengthening the original Douyin commercial skit. The revenue of 2024H1 commercial custom skits grew rapidly, up 3.8 times over the previous year; the C-side recharge amount for multiple short dramas exceeded 20 million yuan, which is at the leading level in the industry.

[Overseas skit] 2024H1 launched its own overseas skit platform. As of the end of 2024H1, a total of 5 short dramas have been released, and a number of overseas skits are in the process of being produced.

Profit forecast and investment rating: The company is a leader in the long series industry, with strong content production capacity and high popularity rate; it focuses on developing new business forms such as overseas and short dramas. We expect 2024-2026 revenue of 0.912/1.482/1.961 billion yuan, net profit to mother of 0.126/0.217/0.274 billion yuan, corresponding PE of 11/6/5X, maintaining a “buy” rating.

Risk warning: Risks such as content market performance falling short of expectations, production costs/project development process/revenue recognition falling short of expectations, loss of inventory, loss of core talent, impairment of accounts receivable, overseas performance falling short of expectations, increased industry competition, downward valuation center, and market style changes.