Incidents:

On October 25, 2024, Mango Supermedia released its 2024 three-quarter report, with 2024Q3 revenue of 3.32 billion yuan (YOY -7.14%), operating profit of 0.459 billion yuan (YOY -7.32%), and net profit to mother of 0.38 billion yuan (YOY -27.41%).

Investment highlights:

The decline in net profit is mainly due to income tax effects:

2024Q3 revenue was 3.32 billion yuan, YOY -7.14%, QoQ -8.74%; net profit due to mother 0.38 billion yuan, YOY -27.41%, QoQ -35.95%; net profit without return to mother 0.314 billion yuan, YOY -26.8%, QoQ -29.45%. 2024Q3 net profit margin was 14.05%, -3.14pct year on year; gross margin was 29.15%, -6.67pct year on year; the period expense ratio was 13.84%, -6.12pct year on year, of which the sales/management expense ratio was -3.65/-1.40pct year on year, and the cost control was good. The decline in 2024Q3 performance was mainly due to tax policies. 2024Q3 income tax increased by 0.28 billion yuan year-on-year, while operating profit was 0.459 billion yuan, or YOY -7.32%.

Variety consolidates its leading edge and clarifies the head+waist+member customized layout:

(1) According to Yunhe, 2024Q3 Mango TV effectively broadcasts 2.5 billion variety shows across the network, yoy +22%; a total of 31 new shows have been released, leading in supply. As of October 25, “Crossing the Pines 3” (launched in August) ranked 1/3/4 of Een's broadcast market share in 8/9/10, respectively, with a cumulative broadcast volume of 7.06 billion, an average of 0.588 billion (ahead of the previous three seasons), and was sponsored by 9 companies including Samsung. 2024Q4 “Goodbye Lover 4” premiered and continues to be trending. Currently, the two platforms have a total of 8 content host tracks, 49 program production teams, and reserves such as “Endless Hong Kong Music Season 2” and “Women's Mystery Club 2”, which are expected to launch in 2024Q4.

(2) Variety shows clearly three levels of layout: head, waist, and member customization. Leading variety shows have a strong ability to attract new products. For example, the hit variety show “Singer 2024” became the program with the highest percentage of new Mango members since 2024; waist variety shows are mainly hanging variety shows, continuously innovating to meet the needs of hanging users, such as “Splendid Garden” and “Goodbye Lover”; increasing the members' customized variety research and development efforts, and released 11 “Little Fun” variety shows in July.

The number of members reached a new high, and the series is expected to drive member revenue:

(1) Increased investment in series is expected to boost members' revenue generation. According to Yunhe, the proportion of effective content played by 2024Q3 members rose to 79%, an increase of 16% over the previous year, ranking first among video platforms.

2024Q4 “Splendid Peace” began broadcasting, and “People in the Alley” is scheduled for October 28. Currently, over 80 movies and TV dramas are in reserve. “Lucky Family” is expected to be released in 2024Q4, “National Color Fanghua” and “Five Blessings to the Gate” are expected to be released in 2025Q1. Other reserves include “Water Dragon Yin” and “Benevolent Club”.

(2) Mango TV currently has over 70 million active members, reaching a new high. Member revenue continues to grow rapidly, mainly due to: ① the promotion of popular variety shows/series; ② continuous innovation in membership benefits, with sales exceeding 20 million in a year since the launch of Dynamic Zone Mango Card; continuing to deepen cooperation with 88VIP; and reaching strategic cooperation with Huawei to create IP customization and new member benefits.

AIGC is fully involved in content production, and short dramas are progressing rapidly:

(1) AIGC is fully involved in content production. The Mango Big Model officially passed the filing review in July (the first batch in the radio and television industry). It has been widely used in script production, high-definition production and broadcasting, and has implemented more than 60 applications in business scenarios; the “Shanhai Research Institute” was established to focus on the development and implementation of image video generation and understanding models to create an innovative production engine for short dramas — the Shanhai Short Drama Intelligent Production Platform, which will be released soon.

(2) The continuous development of short dramas. “730 Damang Theater”, the first golden short drama theater in the country, was launched, and the “Mango Short Drama Spark Program” was launched to reserve high-quality film and television resources. The number of mini short dramas launched in a single month is close to 30.

(3) Breakthrough in content going overseas. The number of overseas downloads of the Mango TV international app has now risen to 0.21 billion in 2024 (0.13 billion in 2023), with Europe and the US accounting for 5.3% of new downloads, and the “doubling plan” of 0.26 billion is expected in 2024.

Profit prediction and investment rating: The integration of the “Taiwan Network” dual platform has been further deepened. The company relies on the continuous self-control ability of popular content on both platforms to establish a positive ecological cycle of long video content, and actively promotes the integrated development of technology and content. We expect 2024-2026 revenue of 15.022/16.647/17.995 billion yuan, net profit to mother of 1.811/2.185/2.372 billion yuan, corresponding PE of 28/23/21X, maintaining a “buy” rating.

Risk warning: Slowing macroeconomic growth, falling short of expectations in variety investment/membership growth/content performance, the impact of new business layout, rising copyright prices, falling short of expectations in the layout of new technology, policies, brain loss, changes in advertisers' budget preferences, governance structures, and market style changes.