Incidents:

On October 30, 2024, Wanda Film released its 2024 three-quarter report. 2024Q3's revenue was 3.628 billion yuan (YOY -18.98%), net profit to mother 0.055 billion yuan (YOY -92.01%), and net profit not attributable to mother was -0.004 billion yuan (2023Q3 was 0.689 billion yuan).

Investment highlights:

Performance is under pressure due to a weak film market:

(1) 2024Q3 revenue of 3.628 billion yuan (YOY -18.98%, QOQ +51.37%), net profit to mother of 0.055 billion yuan (YOY -92.01%, QOQ +126.03%), net profit after deducting non-attributable net profit of -0.004 billion yuan (2023Q3 is 0.689 billion yuan), non-recurring profit and loss of 0.059 billion yuan (YOY +1549.42%). The pressure on performance is mainly due to large market box office performance For weakness.

2024Q3 gross profit margin 20.37% (YoY -10.80pct), net profit margin 1.52% (YoY -13.93pct); period expense ratio 18.88% (YoY +3.97pct), of which the sales/management expense ratio is +1.26/+1.87pct yoy. According to Cat's Eye, 2024Q3 grossed 9.839 billion yuan (excluding service fees), YOY-44.17%, and QOQ +46.94%.

(2) 2024Q1-Q3 revenue of 9.847 billion yuan (YOY -13.23%); net profit due to mother 0.169 billion yuan (YOY -84.87%); net profit not attributable to mother 0.082 billion yuan (YOY -92.53%).

Innovate the cinema business model to increase non-ticket revenue:

(1) According to Cat Eye, the 2024Q3 company's voting room (excluding service fees) was 1.557 billion yuan (YOY -40.78%, QOQ +45.24%), with a market share of 15.82% (+0.91pct year over year, -0.18pct month-on-month). 2024Q1-Q3, the company's film voting room was 4.846 billion yuan (YOY-23.60%), with a market share of 15.40% (+0.09pct year over year). At the end of 2024Q3, the company's domestic direct-managed cinemas/screens were 707 or 6149, an increase of 1 home or 11 blocks compared to the end of 2024H1; overseas cinemas/screens were 61 or 530, the same as the end of 2024H1.

(2) Create differentiated marketing activities, explore new cinema business models, and increase cinema non-ticket revenue.

In September 2024, the first “Flower World” popcorn franchise store appeared in its cinemas, and carried out cross-border cooperation with the leading game “Genshin” in various areas such as surrounding derivatives and theme packages, W+ membership cards, IMAX themed cinemas, and pre-screening advertisements; the subsidiary TimeNet continues to expand IP derivative cooperation and operations, and will cooperate with more leading IPs such as movies, TV, games, and trendy brands in the future.

Movie & game performance increased year-on-year, and reserves of leading projects were abundant:

(1) 2024Q3 film investment, production and distribution business revenue and profit increased year-on-year. In 2024Q3, the main production+main distribution of 2 movies (“White Snake: Floating” and “Catching the Doll”) and participation in “Murder” totaled more than 5 billion yuan at the box office. Producers such as “The Untold Story”, “Accidental Killing 3”, “Tricking” and “A Cloud Like You” are expected to be screened in 2024Q4. Producers such as “Tang Detective 1900,” “Journey to the Wild”, “Cold War” series, and “Change Your Mind Blossoms” are expected to be screened in 2025.

(2) The operating performance of the 2024Q3 game business increased year-on-year. Overseas sales of the long-term product “Saint Seiya: Legend of Justice” continued to contribute to stable profits, and the new product “Shadow Fight 3” performed well after its launch in August.

Profit forecast and investment rating: We expect the company's revenue in 2024-2026 to be 12.965/15.215/16.665 billion yuan, net profit to mother of 0.264/1.068/1.322 billion yuan, respectively, and the corresponding PE is 81/20/16X. As a leader in the domestic cinema investment industry, the company's share of the box office market is steadily increasing, and the entire film industry chain is expected to be empowered after Ruyi takes a stake in the content side, strengthen the company's overall industry chain layout advantages, and have high upward flexibility in valuation. Based on this, the “buy” rating is maintained.

Risk warning: Risks such as box office recovery falling short of expectations, film development process falling short of expectations, box office performance falling short of expectations, cost control falling short of expectations, increased industry competition, brain loss, offline consumer demand falling short of expectations, asset impairment, goodwill impairment, and declining valuation center.