1HFY25 results fall short of market expectations

The company announced 1HFY25 results (for the six months ended October 31, 2024): revenue of 3.051 billion yuan, up 17%; net profit to mother of 0.337 billion yuan, down 27%; non-GAAP EBITA 0.642 billion yuan, up 39%; non-GAAP net profit of 0.451 billion yuan, down 14%, lower than market expectations, mainly due to higher than expected management expenses.

Development trends

The 2024 movie market is under relative pressure, and film investment and distribution revenue may drop at the same time under the high summer program base. Content: Revenue of 1.224 billion yuan, a year-on-year decrease of 17.3%. The company continues to increase investment in self-production projects and strengthen its promotional status. 1HFY25. The company participated in the production and promotion of more than 47 films, including “Peace and Riot Control Force” and “A Small Shop by the Clouds”, and jointly introduced and marketed “What kind of life do you want to live”. We believe that the company is actively expanding its production and self-production capabilities to cover key schedules and leading projects, but considering the relatively lackluster performance of some summer movies and the high base of films such as “The Girl Who Disappeared” in the same period last year, the content business fluctuated to a certain extent. In terms of dramas, the company broadcast “Save Flowers” and “Live Operation Room” on 1HFY25. It has developed over 60 projects, and the business is progressing relatively steadily. The company also deeply lays out performance content and deepens the vertical expansion space of the performance market.

Live entertainment experiences are still booming with both supply and demand, and Damai GMV achieved a year-on-year increase of more than 50%. Ticketing and technology platforms: Revenue of $1.227 billion, up 139.6% from the same period. Among them, the movie ticketing business was affected by market pressure. According to the Performance Association, domestic performance box office revenue for concerts and music festivals increased by 134.7% in the first half of 2024. According to the announcement, Barley still maintains its leading position in the performance ticketing market. 1HFY25 barley GMV also increased by more than 50%. We expect its current revenue to achieve a high year-on-year growth rate. Due to the merger of barley and its business development, the company's 1HFY25 management expenses also increased by 53% to 0.599 billion yuan, which had a certain impact on profits. We believe that the performance industry will maintain a certain level of prosperity in 2024 and look forward to steady growth in 2025; the company is also further developing overseas opportunities and focusing on its diversified expansion space. IP derivatives and other businesses: Revenue also fell 3.4% to 0.599 billion yuan, with Aliyu's revenue also increasing by more than 40%.

The 2025 film reserves are rich and diverse, and pay attention to the box office performance of the key film “Fengshen 2” during the Spring Festival. As of November 20, the company had 70 films in reserve, of which 35 were invested for screening and 35 were independently developed and manufactured. Looking ahead to 2025 and beyond, “Fengshen 2” is scheduled for January 29, 2025 (Spring Festival). Other reserves include “Catch a Secret Agent”, “Maverick”, “When the Stars Shine”, “Dart Man: The Wind Rises in the Desert”, and “Song for Youth”. At this point, we believe that the market's expectations for the 2024 movie box office are relatively sufficient. The 2025 Spring Festival program has a high standard of scheduled and reserve films, which is expected to help boost confidence in the development of the film industry. It is recommended to focus on the potential growth potential of the Spring Festival box office and the box office performance of “Fengshen 2” in which the company participated.

Profit forecasting and valuation

We lowered FY25/FY26 non-GAAP net profit 1.9%/15.7% to 0.625/1.047 billion yuan due to the increase in barley revenue but the increase in expenses etc. exceeded expectations. The current price corresponds to 12.4 times FY26 non-GAAPP/E. Maintaining an outperforming industry rating, the target price was lowered by 17% to HK$0.53 due to a reduction in profit forecasts, corresponding to 13.8 times FY26 non-GAAP P/E, with 12.8% upside compared to the current price.

risks

The quality and quantity of content supply fell short of expectations, competition intensified, regulations were tightened, and there was a risk of impairment of goodwill.