Performance declined year over year. 1) In the first half of the year, the company achieved operating income of 0.368 billion yuan and net profit of 0.071 billion yuan, a year-on-year decline of 67.67% and 70.39%, corresponding to fully diluted EPS of 0.04 yuan; the sharp decline in revenue and performance in the first half of the year was mainly due to a significant decrease in the number of movies and TV series released; 2) Among them, Q2 achieved operating income of 0.191 billion yuan and net profit of 0.041 billion yuan, respectively, up 10.8% and 55.9% year-on-year, corresponding to full dilution EPS 0.02 yuan; 3) The company plans not to pay cash dividends for half a year, no bonus shares, and not to use the Provident Fund to increase share capital.

Adhere to the “content is king” strategy and pay attention to the release of reserve content. 1) In the first half of the year, the company's TV series production and distribution business achieved revenue of 26.5 million yuan, a year-on-year decline of 96.8%, which was the main reason for the decline in revenue and performance in the first half of the year; mainly due to the company's focus on project development, the number of launches decreased significantly compared to the previous period; the plan to launch 8 TV series in the second half of the year, including “Our River and Mountain”, is expected to drive the bottom of the TV drama production business to pick up; 2) The TV drama copyright business continued to maintain a high growth rate, with revenue growth of 26.87% to 0.18 billion yuan year on year; gross margin declined slightly year on year 1.79 percentage points to 66.56%; 2) In the film business, the first half of the year completed participation in the three projects “Speeding Life 2,” “I Don't Want to Be Your Friends,” and “Murder”; in the second half of the year, “Wild Age” and “Assassination of the Novelist 2” have already started filming, which is expected to drive continuous improvement in the film business.

Focus on the performance of the second growth curve and AIGC layout. 1) Animation business: Three key projects are being developed at the same time (two animation projects and one major animated film project); in the second half of the year, it is planned to introduce an animated film and complete the production of an animated series; 2) International business: 0.15 million hours of film and television productions will be distributed to more than 200 countries and regions around the world, and many series will be broadcast in Southeast Asia, Japan, South Korea and other regions, exceeding the semi-annual distribution target; 3) Short drama business: based on quality content, making full use of the IP value of leading series to cooperate with Touyin, Changdiao IP 》During the broadcast, it was on the Douyin Hot List 9 times and the Douyin Entertainment List 12 times, with an average total broadcast volume of nearly 0.2 billion; 3) AIGC: The self-developed “windy” model has been registered according to the National Generative Artificial Intelligence Service List, invested in Smart Genesis Huazhang, and will jointly develop an intelligent film and television content generation system and a vertical model for film and television content review.

Risk warning: TV drama sales risk; regulatory policy risk; risk of box office falling short of expectations, etc.

Investment advice: Maintaining the profit forecast, we expect net profit to be 0.448/0.524/0.546 billion yuan for 24/25/26; diluted EPS = 0.24/0.28/0.29 yuan, corresponding to the current stock price PE = 23/19/19x. The company has a stable position as a leader in the film and TV drama industry, and its film and copyright operations are emerging. The value of IP in the AIGC and metaverse era is expected to be revalued and continues to maintain a “superior to the market” rating.