Event: The company released its 2024 three-quarter report. 2024Q1-Q3, the company achieved revenue of 0.96 billion yuan (yoy -27.35%), net loss of 0.354 billion yuan (yoy -50.02%), deducting non-net loss of 0.399 billion yuan (yoy +8.43%), of which 2024Q3 achieved revenue of 0.32 billion yuan (yoy -32.23%), net loss of 0.216 billion yuan (yoy -855.70%), net loss of 0.251 billion yuan (YOY -5107.67%).

The cinema business is being dragged down by the general market, and the market share ranking remains stable. According to the Cat Eye App, the national movie box office reached 34.768 billion yuan (yoy -23.73%) and the number of movie viewers reached 0.816 billion yuan (yoy-23.88) from 2024Q1 to Q3. The overall decline in the movie market is expected to lead to a decrease in the company's cinema business revenue. At the same time, costs are relatively rigid, and it is expected that it is still in a state of loss. As of 2024H1, the company's cinemas have joined 131 theaters, including 101 companies' cinemas and 30 external participating cinemas, and the film producer has a total of 107 cinemas, with a total of 888 screens; according to AIEN data, as of 2024Q3, the company's cinema market share reached 2.07% (YOY-0.16pcts), ranking 13th in the country; the film investment market share reached 1.96% (YOY-0.22pcts), ranking 6th in the country.

The films screened during the summer program fell short of expectations. The summer program company produced two films, “Tales” (80 million yuan), “Red Mansion Dream: A Golden Jade” (box office of 6.01 million yuan), and “Deadpool and Wolverine” (0.43 billion yuan), and “Alien: Destroyer” (box office 0.786 billion yuan), which participated in the film business performance due to weak overall market performance and poor box office performance of the films invested or distributed by the company.

The drama business performed well. “Shangganling” temporarily ranked the highest average ratings for annual series. In July 2024, the first domestic AIGC-generated continuous narrative sci-fi short series “Sanxingdui: Future Revelations”, produced by the company's AI studio, was launched on Douyin, ranking second in the most popular Douyin skit list. The TV series “Shangganling” was broadcast on CCTV-1 in October. As of October 30, the audience size exceeded 0.2 billion, and the audience share reached 14.593%. The ratings rate was 3.362%. The series business performance was excellent.

Diversified film reserves are abundant and are expected to contribute to flexible performance. The company has a strong ability to continuously produce high-quality films. While consolidating the advantages of the main theme, it is also actively exploring new directions for diversified content. 1) Main theme reserves: The movie “Operation Jiaolong” (expected to be released in 2025), “Princess Kashmir” (expected to launch in 2024), etc.; 2) Multi-genre reserves: the film covers genres such as costume, commercial warfare, animation, science fiction, etc., “Gun” will be screened on November 1. “The Wolf of the City”, “The Red Mountain Case”, and “Human Warfare” are being prepared; the series includes urban emotional suspense “Hunting Time”, “Minister Chincha Lin Zexu”, etc.; Participating external films include “Paddington Bear 3” and “Avatar 3.”

Profit forecast: The performance of the company's films released in the first three quarters of 2024 fell short of expectations, and the performance of blockbusters such as “Operation Jiaolong” and “Princess Kashmir” is worth looking forward to. Therefore, we adjusted the profit forecast and expect the company to achieve net profit of 0.35/0.48/0.54 billion yuan in 2024-2026, with a year-on-year growth rate of 36.1%/235.4%/13.0%, maintaining a “buy” rating.

Risk warning: Movie box office falls short of expectations, industry regulation intensifies, and operating performance fluctuates seasonally.