Key points of investment:

A breakthrough in the realist theme category. Realism-themed films are currently one of the company's key investment directions. “Article 20,” which was released during the Spring Festival this year, aroused widespread discussion and strong reactions, and also achieved excellent results at the box office (cumulative box office of 2.45 billion). In terms of realistic themes, the company has plenty of reserves, and the “Section X” series will continue, such as “Section 3,” which shows that there is no principle of criminal determination or suspicion, and “Article 17,” which focuses on juvenile delinquency; and “People's Justice,” the first film by Li Lu, director of the TV drama “The Name of the People”, is also being developed and created.

Light Media's forward-looking layout has established a leading position in Chinese animated films and is actively exploring AI. The company's advantages are: 1) layout foresight, starting with animated films as its core strategic business in 2015; 2) it has an advantage in distribution and production, starting with film distribution and strong publicity capabilities; working together on the two lines of color strip house (cooperating with investee animation companies) and light animation (developing a “Chinese mythological universe” system and “forming an internal animation production team”). 3) Hold multiple IPs, including “Nana”, “Jiang Ziya”, “Deep Sea”, etc. 4) Actively embrace AI. In terms of animation production, all aspects of animation production have been combined with AI technology, especially in pre-production of animation, such as image design, scene design, and split camera scripts.

IP reserves are abundant, and the long-term accumulation of animated films ushered in a release period. Animated film projects such as “The Demon Boy in the Three Kingdoms”, “Starry Sky in the Three Kingdoms”, “Big Fish Begonia 2,” “Shuo Feng,” “Inhuman,” “Zhuolu,” “Journey to the West: Daisheng Haunting Tiangong,” “Jiang Ziya 2,” and “Yesterday's Blue Sky 2,” etc., are progressing at their own pace. In terms of talent reserves, the company has formulated the “321 Plan”: that is, it trains 30 producers, 20 screenwriters, and 10 directors internally, while also continuously searching for and signing external directors and screenwriters.

Adjust profit forecasts to maintain a “buy” rating. In 24H1, the company achieved revenue of 1.33 billion yuan and net profit of 0.47 billion yuan; considering that “Nacha's Demon Boy Naohai” has not yet been set, we adjusted the company's net profit forecast for 24-26 to 0.684/1.003/1.194 billion yuan (the original forecast was 1.149/1.396/1.539 billion yuan, respectively), and the current price is 28/19/16 times PE for 24-26, respectively. We believe that the increase in animated film production capacity of the company's animated film brand Light Animation is expected to gradually be reflected starting in '25. We are optimistic about the future of the company's animated film circuit and breakthroughs in realistic live-action movies. Referring to historical PE-band (TTM), most of the company's valuations in the past five years have been more than 39 times higher. Currently, the valuations have an outstanding price-performance ratio and maintain a “buy” rating.

Risk warning: Risk of policy and regulatory changes; content investment results fall short of expectations.