Incidents:

The company released its 2024 three-quarter report. In the third quarter, it achieved operating income of 0.108 billion yuan, a year-on-year decrease of 67.85%; realized net profit to mother of -0.012 billion, a year-on-year decrease of 107.18%; and realized deducted non-net profit of -0.028 billion yuan, a year-on-year decrease of 117.43%.

Fewer movies were broadcast in the third quarter, and there are plenty of movies in stock for the future. In the first three quarters, the company invested, distributed, and included in the box office, including “Heavy Rain,” “Article 20,” “Clean Up, Never Give Up,” and “Evacuate Safely from the 21st Century”, which was screened in the reporting period. The films released in 2023 with some box office carry-over included “Lighting Store”, “Rage”, and “Your Wedding” (replay), with a total box office gross of approximately $2.927 billion. Currently, the film “Jo-yeon's Heart”, which was invested and distributed by the company, was screened on October 26, 2024, and is currently being screened nationwide; the film “Grab the Ticket”, which the company invested in, will be screened on November 15, 2024; the company also has many film projects such as “Little” People, “Her Little Pear Vortex”, “Invisible Man”, “The Mysterious Adventure of Mordogah”, and “Forty-Four Irritating Persimmons.”

The animated film “Xiao Qian” is at an opportune stage; the creation of animated film projects such as “The Demon Boy in the Three Kingdoms”, “Go to Your Island”, “Big Fish Begonia 2”, “Acacia”, “Shuo Feng,” “Inhuman,” “Zhuolu,” “Journey to the West: Dasheng Haunted Tiangong”, “Jiang Ziya 2,” “Tea Ah 2 Middle School 2,” and “Yesterday's Blue Sky 2” are progressing steadily in their respective stages.

The TV series business is progressing well. “Dali Temple Shaoqing Tour” was broadcast live on iQiyi on February 20, 2024. During this reporting period, the costume light comedy “The Saddle” was broadcast on Tencent Video and Mango TV on July 31, 2024; “Mountain and River Pillow” is successfully undergoing post-production; and the development of drama projects such as “Spring Dinner” and “My Date List” continues to advance.

After deducting the investment business, the main business remained profitable in the third quarter. During the reporting period, some of the funds invested by the company were affected by market fluctuations, and their performance was weak, which had a certain adverse impact on the company's performance. Without considering the negative impact on investment income, the company's main business remained profitable in the third quarter. Other projects involving joint cooperation between the investee companies and the company are progressing smoothly. The company's layout in the field of industrial investment can continuously bring many opportunities and resources to the company.

The internal talent training system is mature, and the success rate of training new hires is high. During this reporting period, many film and television projects starring the company's artists received widespread attention after their launch on the market, bringing good improvements to the personal and commercial value of artists. On the other hand, the company has accumulated some very mature experience in finding and supporting new directors, and the success rate is relatively high. In addition to actors, there are many screenwriters, cinematographers, and even company employees who have the potential and opportunity to be directors. The company has formulated the “321 Plan”: training 30 producers, 20 screenwriters, and 10 directors internally, while also continuously searching for and signing external directors and screenwriters. Currently, the plan is progressing smoothly.

Maintain a “Highly Recommended” investment rating. Considering that the company's performance in 24Q3 was dragged down by the investment business, we expect the company's operating income for 24-26 to be 1.917/2.683/2.952 billion yuan respectively, with year-on-year growth rates of 24%/40%/10%, respectively; net profit to mother of 0.527/1.028/1.165 billion yuan, respectively, with year-on-year growth rates of 26%/95%/13%, respectively. Corresponding to current stock price-earnings ratios of 49.2/25.2/22.3 times respectively, are maintained “Highly recommended” investment rating.

Risk warning: The risk that the film will not be released as expected, the risk that the recovery of offline scenes will fall short of expectations, the risk that AI-enabled film production will fall short of expectations, etc.