Event: The company released its 2024 semi-annual report. 2024H1 achieved operating income of 6.218 billion yuan (YoY -9.48%); realized net profit of 0.113 billion yuan (YoY -73.18%), net profit not attributable to mother of 0.086 billion yuan (YoY -79.17%), of which 2024Q2 achieved operating income of 2.397 billion yuan (YoY -22.97%) and net loss to mother of 0.212 billion yuan (YoY -298.32%), net non-return to mother The loss of 0.221 billion yuan (YoY -519.66%) was mainly due to the decline in the revenue of the cinema sector due to the 2024Q2 market box office, while costs were more rigid (mainly including rent, manpower and depreciation), leading to losses in the 2024Q2 cinema sector, and the overall profit side declined year-on-year. In addition to the theatrical box office business, all films already screened in the film and television business achieved profits in the first half of the year, and revenue from the game and IP derivatives business continued to grow year over year.

The recovery of the general market fell short of expectations, leading to a year-on-year decline in revenue from the cinema business, which ranked first in terms of market share. 2024H1 was affected by the slow recovery of the movie market Q2, and the company's cinema business was under pressure. 2024H1's domestic cinemas achieved box office of 3.13 billion yuan (excluding service fees), yoy -14.5%; the number of movie viewers was 0.075 billion, yoy -14.3%; 2024H1 had a cumulative market share of 16.9%, up 0.1 pct year on year, steadily ranked first in the industry; the company's Australian cinema line was affected by insufficient supply of content in the overseas film market and weak box office for leading movies. 2024H1 achieved box office revenue of 0.131 billion Australian dollars, yoy -6.8%, viewers 7.4 million, and yoy -5.1%. It is expected that the summer program will resume with the box office performance of films such as “Mind Force 2” and “Deadpool and Wolverine.” As of 2024H1, the company has 918/61 domestic/overseas cinemas and 7641/530 domestic/overseas screens. Among them, direct-run cinemas have been upgraded, and light asset cinemas have continued to lead the industry in operating efficiency. During the reporting period, the company stabilized its projection terminal strength and signed a strategic cooperation and upgrade agreement with IMAX in June. It is expected that in the next three years, the company will add 25 new IMAX cinemas and upgrade 61 IMAX cinemas to the latest laser IMAX technology, while upgrading 390 of its cinemas with RGB laser to reduce the cost and increase the efficiency of cinemas.

Non-ticketing business products continue to be upgraded to enhance brand influence. During the reporting period, the company actively created a multicultural film scene, and comprehensively carried out various innovative businesses such as IP exhibitions, IP-themed scene activities, performances, research, and Olympic game broadcasts to continuously generate revenue and drainage for cinemas, and attract young customers to enhance brand influence. 2024H1's non-ticket revenue reached 1.401 billion yuan (yoy -12.04%); of these, the product business reached 0.813 billion yuan (yoy -17.25%). The company created a “Flower World” popcorn sales scenario to upgrade the flavor of core popcorn products, developed its own “Original Xianqian” Sida series sales broke through 1 million bottles, and continued to innovate cinema products; collaborated with subsidiary TimeNet to create “hot model+IP” products such as Bubble Mart, “Milk Dragon”, and “White Snake” series to increase the commercial value of IP products , expand sales channels and marketing models, and strengthen the monetization capacity of IP derivatives; the advertising business reached 0.588 billion yuan (yoy -3.64%), and the advertising business recovery process is lagging behind. It is expected that advertisers' willingness to invest will increase in the future as the market recovers.

Confucius's entry led to excellent performance in the film and television business, and the reserve content is worth looking forward to. Driven by the new management's rich investment experience in film and TV drama projects during the reporting period, the company achieved profits in the first half of the year. The films “Peace and Riot Force”/“I Don't Want to Be Friends with You” received 0.511/0.203 billion yuan at the box office, becoming the 51/Dragon Boat Festival box office winner; participating in the film “Article 20” (2.45 billion yuan), and many other films, such as “Legend of Sword and Fairy 4,” “From the South to the North,” “The Wind Chaser,” and “My Altay” were both well-received at the box office; it produced the series “Legend of Sword and Fairy 4”, “From the South to the North”, “The Wind Chaser”, and “My Altay” Achieve good ratings and word of mouth. Within the summer program, the company produced the films “Catch the Doll” and “White Snake: Floating”, which had grossed 3.24/0.38 billion yuan as of the release date of the company's semi-annual report (August 30), participated in the films “Murder” and “Declassified,” and broadcast “Misplaced” and “Sifangguan” in TV dramas. Looking ahead to the future, the main projects “Accidental Killing 3,” “A Cloud Is Like You,” and “Deceiving” to Like You, and the participating project “Daredevil to Run Away” are expected to be screened within the year. “Tang Detective 1900” and the interactive live action game project “Don't Open That Door” are progressing according to plan; “Love Has Fireworks,” “The Prosecutor and the Teenager,” and “Confessions in the Night” are being actively promoted on the drama side. Furthermore, the company will further explore AI technology, which is expected to enable content production. Subsequent content reserves are abundant, which is expected to bring about flexible performance.

Profit forecast and rating: Considering that the 2024 movie market is under overall pressure due to lack of high-quality supply, we are optimistic that the restoration of supply quality in 25 will drive market recovery. We adjusted the profit forecast. The company expects to achieve net profit of 0.78/1.41/1.6 billion yuan in 2024-2026, with year-on-year changes of -14.5%/+81.2%/+13.2%, maintaining a “buy” rating.

Risk warning: Online entertainment methods are impacting, industry competition is intensifying, and business cooperation falls short of expectations.