Incidents:

On October 30, 2024, Shanghai Film announced its 2024 three-quarter report, 2024Q3 revenue 0.179 billion yuan (YOY -30.52%), net profit to mother 0.038 billion yuan (YOY -34.68%), net profit not attributable to mother 0.001 billion yuan (YOY -98.27%).

Investment highlights:

Due to the influence of the movie market, performance is under pressure in the short term.

(1) 2024Q3 revenue of 0.179 billion yuan (YOY -30.52%, QOQ +4.67%), net profit to mother 0.038 billion yuan (YOY -34.68%, QOQ +66.87%), net profit of 0.741 million yuan (YOY -98.27%, QOQ -94.91%), non-recurring profit and loss of 0.038 billion yuan (YOY +137.43%, QOQ +346.19%), mainly non-current Profit and loss on asset disposal was $46.26 million. Short-term pressure on performance is mainly due to weak broad-market box office performance.

2024Q3 gross profit margin 19.10% (YoY -7.75pct), net profit margin 31.18% (YoY +5.42pct), and period expense ratio 15.95% (YoY +8.18pct), with sales/management expenses ratio +3.70/+3.54 pct yoy.

(2) 2024Q1-Q3 revenue 0.56 billion yuan (YOY -11.07%); net profit due to mother 0.107 billion yuan (YOY -13.74%); net profit not attributable to mother 0.044 billion yuan (YOY -33.76%).

The market share of film investment is steady, and the “cinema +” strategy continues to advance.

(1) According to Cat Eye, the 2024Q3 box office (excluding service fees) was 9.839 billion, YOY -44.17%, QOQ +46.94%; the company's directly-managed cinemas had a box office of 0.11 billion yuan (YOY -44.72%, QOQ +33.41%), and the company's film projection market share was 1.12% (-0.01pct year on year, -0.11pct month-on-month), which is basically stable.

(2) Continuously deepen the “cinema +” strategy. During the Paris Olympics, the company's cinemas participated in the direct broadcast of the Olympic Games; teamed up with the Card Hall to create a new way to play across borders with the Shanghai Film Studio IP; and collaborated with the virtual artist group VirtuaReal to launch the first live theatrical broadcast of Asa Aza's first solo concert. The film “Good Things” distributed by the company is scheduled for November, and live-action movies such as “A Thousand Miles of Rivers and Mountains” are in reserve.

IP business logic is gradually verified, which is both flexible and resilient.

(1) AI+IP: In July 2024, they joined hands with Step Star at the World Artificial Intelligence Conference to launch an “IP+AI” exploration with the two major IPs of “Breaking Up Tiangong” and “The Hulu Brothers”.

(2) Strengthen IP licensing and cooperation: Strategic cooperation with Kaiying Network to jointly launch the first IP cooperation project “Black Cat” game; signed a strategic cooperation with Mobi World, and during the Shanghai Film Festival, its cultural and creative brand SFCine+ and Mobi World jointly launched cultural and creative peripherals and pop-up products.

(3) Accelerate content renewal: In October 2024, the “Haunting Tiangong” Short Drama Program was officially announced to continue to renew the film IP, and accelerate the deep integration of IP and cultural tourism scenarios through “traveling with skits” and “growing popular skits”. The animated film “Little Monster's Summer” is expected to be screened in the summer of 2025, and the animated drama “China's Strange Tan 2” is expected to be released in 2025.

Profit forecast and investment rating: The company clarifies the new iNew strategy, promotes the big IP development process, and actively explores AI+IP, which is expected to build a second growth curve. We expect the company's revenue in 2024-2026 to be 0.81/1.01/1.172 billion yuan, net profit to mother 0.131/0.216/0.271 billion yuan, corresponding PE of 62/38/30X, maintaining a “buy” rating.

Risk warning: Risks such as increased competition, brain drain, recruitment of core talent teams falling short of expectations, offline consumer demand falling short of expectations, IP development process falling short of expectations, derivative quality, declining valuation center, and film market recovery falling short of expectations.