Key points of investment

Incident: The company achieved revenue of 0.32 billion yuan in Q3 of 2024, a year-on-year decrease of 32.23%; net profit loss to mother was 0.216 billion yuan, a year-on-year change of 0.028 billion yuan, a year-on-year change of -858.46%; after deducting non-net profit loss of 0.251 billion yuan, the same period last year was 0.005 billion yuan, a year-on-year change of -3682.85%.

The movie market is still under pressure, and losses in the cinema business have increased. According to Cat's Eye data, the total box office of 2024Q3 movies nationwide was 10.86 billion yuan, down 43.8% year on year, and recovered to 64.5% in 2019.

Since the company's investment in movie box office in the third quarter fell short of expectations, and the overall box office of the film market was lower than the same period last year, the company's cinema screening revenue declined compared to last year. We look forward to the spring festival industry picking up next year, and the company's cinema revenue is expected to increase.

The performance of summer films was relatively lackluster, and the film business contracted year over year. The summer company mainly invested 80 million yuan in the domestic box office for the main control film “The Legend”, and the performance was relatively lackluster. The film “Dream of the Red Mansion” was released until late August, so the summer box office performance was relatively sluggish.

There are plenty of follow-up projects, which are expected to boost performance in the fourth quarter and next year. “Shangganling”, produced by the company in October, was screened on CCTV. The cumulative audience exceeded 200 million, with a maximum audience share of 7.28%. The company has sufficient key reserve projects. It is expected that the movie “The Old Gun” will be released separately on November 1, the film “Operation Jiaolong” will be released in 2025, and many blockbuster movies such as “Princess Kashmir” and “He Killed” will be screened in 2025. In addition, the company's participating film “Paddington Bear 3” will also be screened overseas in November. The company's subsequent releases have now received a high level of attention, and future performance is expected to remain highly flexible.

Profit forecast and investment rating: The company's film business performance has improved, film reserves are abundant, and the cinema business is under short-term pressure due to market factors. Performance is expected to gradually recover with the release of key projects. Considering the company's film content schedule, we adjusted the 2024-2026 net profit of 0.27/0.44/0.56 billion yuan to -0.313/0.463/0.505 billion yuan, corresponding PE of -25.6/17.3/15.8 times. We are still optimistic about the company's film production capacity and box office space, and maintain a “buy” rating.

Risk warning: Investment in movie box office falls short of expectations, market competition risks, and the pace of film releases falls short of expectations.