Event: The company publishes its report for the third quarter of 2024. The first three quarters of 2024 achieved revenue of 3.016 billion yuan, a year-on-year decrease of 28.38%, and realized net profit of 0.216 billion yuan, a year-on-year decrease of 54.22%; the third quarter achieved revenue of 0.893 billion yuan, a year-on-year decrease of 33.99%, and realized net profit of 0.011 billion yuan, a year-on-year decrease of 89.78%, mainly due to poor overall box office performance in the film market and insufficient supply of company films.

Comment: The overall film market was sluggish in the first three quarters of 2024. The total box office dropped sharply in Q3, and the summer program was particularly poor. The total box office of national movies in the first three quarters of 24 was 34.633 billion yuan, down 24% year on year, and the total number of movie viewers was 0.813 billion yuan. The total box office of national movies in July-September '24 was 10.866 billion yuan, down 43.76% year on year, with monthly year-on-year decline of 38.4%/48.1%/48.5%, respectively. The 2024 summer program performed poorly, reaching a total box office of 11.641 billion, down 43.6% from the previous year. Only “Catching the Doll”, which was released on July 16, received over 3 billion in the summer program, followed by “Murder”, a film that grossed more than 1 billion, while in the same period in '23, there were many more than 2 billion box-office films, “The Girl Who Disappeared,” followed by two films grossing more than 2 billion.

By business: 1) Creative sector: In the first three quarters of 2024, the company led or participated in the production and marketing of a total of 34 films, achieving a total box office of 19.501 billion yuan, accounting for 73% of the total box office of domestic films during the same period. Among the top ten domestic box office films, the films produced by the company occupied 8 places. “Volunteer Army: Battle for Survival” won the National Day film box office title, with a total box office gross of 1.16 billion as of October 30. Key films to be broadcast by the company in the future include “The Legend of Condor Heroes: The Legend of the Knight” and “Little Me”. 2) Distribution sector: In the first three quarters, the company led or participated in the distribution of a total of 425 domestic films, with a cumulative box office of 22.183 billion yuan, accounting for 91.37% of the total box office of domestic films during the same period. Chinese films are qualified to distribute imported films. A total of 80 imported films were released in the first three quarters, with a cumulative box office gross of 5.526 billion yuan, accounting for 78.01% of the total box office of imported films during the same period. Among them, films such as “Alien: The Deadly Ship” performed more than expected, and the “Harry Potter” series was still screened on a major IP in 24Q4. 3) Screening sector: As of the end of September '24, the company had 128 operating controlled cinemas and 965 screens; the total number of theaters and cinemas controlled by the company covered 23,875 screens and 2,977 million seats across the country, and the company's screen market share was 29.85% (28.79% for the same period in 2023).

In the first three quarters, the company's controlled participation in theaters and movie theaters achieved a total box office of 9.113 billion yuan. 4) Technology sector: In the first three quarters, China Film Barco sold 1,612 new projectors, accounting for 58.49% of the country's new screen market during the same period. 5) Service sector: In the first three quarters, the China Film base provided production services for 391 films. The number of registered users of the China Film Cloud Ticketing Platform was 16.8351 million, and the number of connected cinemas reached 11,406, exceeding 85% of the total number of countable box-office cinemas in the country.

Profit forecasting, valuation and ratings: The company is a leader in film production and distribution. It has barriers to the distribution of imported films, and subsequent reserve film releases have led to improved performance. In view of the short-term pressure on the film market, uncertainty about the box-office performance of some of the company's films increased. The 24-25 revenue forecast was lowered to 4.2/5.5 billion yuan (-43%/-36% compared to the previous forecast), the 26-year revenue forecast was increased by 6 billion yuan; the net profit forecast for 24-25 was lowered to 0.185/0.482 billion yuan (-84%/-65% compared to the previous forecast), and the net profit forecast for 26 was increased by 0.627 billion yuan. The company has a full layout of the film and television industry chain, significant competitive advantage, and maintains an “gain” rating.

Risk warning: demand for movie viewing falls short of expectations, film and television production falls short of expectations, policy risks.