Introduction to this report:

The company's 2024H1 performance was mainly dragged down by the box office market, and the content side is expected to see an increase in the third quarter. As the supply of movie heads recovers, the 2025 box office results are worth looking forward to.

Key points of investment:

Performance was dragged down by the general market, and content became an important margin. The summer company's main projection “Catch the Doll” is expected to contribute to performance growth, but the cinema business was greatly affected by the box office market, so the 2024-2026 EPS was lowered to 0.40/0.69/0.85 yuan (previous value was 0.65/0.81/0.93 yuan).

Referring to comparable company valuations, and considering the company's leading position in the film and cinema sector, 20x PE was given, and the target price was lowered to 13.80 yuan to maintain the “gain” rating.

Performance fell short of expectations: The company released its 2024 semi-annual report, achieving operating income of 6.218 billion yuan, a year-on-year decrease of 9.48%, and net profit to mother of 0.113 billion yuan, a year-on-year decrease of 73.18%.

The company's performance is highly correlated with the movie market. The box office declined significantly in the second quarter, but fixed costs such as rent and depreciation were rigid, causing the cinema to lose money in the second quarter.

All content released was profitable, enhancing the monetization of IP derivatives. The films “Peace and Riot Force” and “I Don't Want to Be Friends with You” produced by the company in 2024H1 garnered 0.511 billion yuan and 203 million yuan respectively, becoming the May 1st and Dragon Boat Festival box office winners. Participating in the films “Article 20” and “Bears Incurred: Reversing Time and Space” also received high box office results. At the same time, the main summer film “Catch the Doll” has already surpassed 3 billion yuan and became the box office winner. The main animated film “White Snake: Floating” is also expected to reach more than 0.5 billion yuan in box office. In addition, “Mistaken Killing 3,” “A Cloud Is Like You,” and “Tricking to Like You” have already been filmed and are expected to be screened within 2024. “Tang Detective 1900,” “Change Your Mind Blossoms,” and “We Live in Nanjing” are progressing in an orderly manner. With the new management in place, the content business is expected to be the first to break through. In terms of cinemas, as of June 30, 2024, the company has opened 918 cinemas with 7,641 screens in China, including 706 directly managed cinemas and 6,138 screens. The number has remained stable. The company established a self-developed product system to provide differentiated products, while focusing on developing the derivatives business, and launched derivatives such as the “Milk Dragon” series and the Bubble Mart Baby-Molly series.

The gaming business achieved relatively rapid growth. The company's key product “Saint Seiya: Legend of Justice” was launched in Japan in January 2024 and became the top 3 best sellers on the App Store and top 4 on the GooglePlay bestseller list, driving the company's game distribution and related business revenue to increase by more than 100% year over year. 2024H2 will continue to promote the development and launch of reserve games, and it is expected that products such as “Diablo 3” and “Tianyuan Breakthrough” will be launched in the second half of the year.

Risk warning: Movie box office falls short of expectations, game sales fall short of expectations, etc.