Incident: 24H1, the company achieved operating income of 0.381 billion yuan (YoY +2.39%), net profit of 0.069 billion yuan (YoY +4.92%), net profit of 0.043 billion yuan (YoY +84.86%); single Q2 revenue of 0.171 billion yuan (YoY -12.09%), net profit of 0.023 billion yuan (YoY -23.09%), net profit of 0.015 billion yuan (YoY +4806.62%)

The cinema line is pressured by the influence of the large market; the group and channel advantages are used to lay out upstream investment and distribution of movies. In terms of the downstream film and television line business, overall, the year-on-year decline in the movie market has put pressure on the company's revenue side. At 24H1, the total box office of the domestic film market was 23.773 billion yuan (including service fees), down 9.50% year on year; the number of movie viewers was 0.548 billion yuan, down 9.27% year on year. 24H1, Lianhe Cinemas achieved a total box office of 1.761 billion yuan (including service fees), while 23H1 achieved a total box office of 1.988 billion yuan (excluding service fees); 24H1, direct-run cinemas achieved a total box office of 0.245 billion yuan (including service fees), while 23H1 achieved a total box office of 0.282 billion yuan (excluding service fees). The upstream investment and issuance business is expected to be an elastic increase in the company's performance and close the industrial chain layout. In the Spring Festival of '24, the company/video company participated in “Hot and Hot” and “Bears Are Coming: Reversing Time and Space”; at the same time, in the first half of the year, they actively participated in the investment and promotion of various types of films such as “Seeing One Bridge” and “Body of Lies”. The Shanghai Film Federation has given full play to the production advantages of Shanghai Film Group and the advantages of Shanghai Film Corporation's cinemas and theatrical channels to continue to enrich film list reserves and expand forms of film cooperation.

24H1's net profit exceeded 20 million, and the IP commercialization path was gradually realized. 25 years may be a big year for the company's IP content launch. In terms of content, the big movie “The Summer of the Little Monster: Once Upon a Time There Was a Langlang Mountain” is scheduled for the summer of 2025. The second season of “China's Qitan” has already started in 2023 and is expected to be released in 2025. It is recommended to focus on the development of the “Kitan Universe” content. In terms of commercialization, 1) Game Linkage: Linkage with various types of games such as “Light Encounter”, “Battle for Peace and Beijing”, “Everlasting”, “Super World”, “Time Travel Agency”, and “Ball Hero”, with total communication exposure exceeding 3 billion; 2) IP licensing: IP licensing: with Guangming Dairy, Starbucks, Pizza Hut, BMW, Ruixing, Guming, Wallace, China Post, JD, Nestle and other well-known brands in the fields of food, lodging, and play; 3) Cultural and creative IP Continuously build an innovative brand of fine literature, “Shangying Film Elements”, and has developed products including self-research, joint development, Hundreds of SKUs, including custom development.

“AI+IP” is actively deployed, and industrial cooperation continues to be implemented. 1) Cooperation with Step Star: Using the classic IP “Hulu Brothers” as the carrier, explore Wensheng Video's controllable IP generation technology. 2) Cooperation with Rokid: Jointly released a new AR space interactive entertainment+ classic national IP project to interpret the classic images of Son Goku and Nezha in VR. 3) In collaboration with Mutual Film Technology, Reading Group, and Shanghai Film Production, the world's first two-player interactive movie game “Spies Come Double” was simultaneously launched on the game platforms Steam, WeChat Applet, and QQ Applet, making it the number one new and popular product on the Tanabata Festival Steam platform.

Profit forecast and investment advice: In 2024-2026, the company's revenue is expected to be 0.846/1.175/138.4 billion yuan, 6.3%/38.9%/17.8% YoY; net profit to mother 0.16/0.294/0.389 billion yuan, or 25.8%/32.4% YoY. Maintain a “buy” rating.

Risk warning: commercialization falls short of expectations, risk of being affected by the economic cycle, risk of changes in industry policies, etc.