Aofei Entertainment: IP connects everything and instills happiness and dreams. Aofei Entertainment is an animation and entertainment culture industry group with IP as its core. The company has built a diverse industrial pattern with animation IP as the core, covering animation, comics, movies, licensing, media, toys, children, games, space entertainment, etc. The company's main business includes content creation and operation, toy business, baby business, and trendy toys business. In total, founder Cai Dongqing and his co-actors hold more than 40% of the shares.

Corporate governance: Cai Xiaodong, a veteran in the toy industry, took over, and management was beginning to bear fruit. As a private enterprise that started with toys, the company was initially responsible for overall strategic planning and operation management, with the assistance of his brother Cai Xiaodong; during 19-21, along with the continuous expansion of the business line, the company hired professional manager Mr. He Dehua as the president to be fully responsible for the company's daily operations; since '22, Cai Xiaodong has been the company's general manager and has taken over the management of the company. In terms of strategic planning, the company implements the “1+3” strategic direction, insists on developing IP as the main focus, and implements the “explosives first+ride the wind and go overseas” strategy.

IP business: The company holds national IP and is deeply involved in the operation of the entire industry chain. By creating and acquiring high-quality IPs on its own, the company has built a large number of well-known IP matrices in China, covering all age groups, including Super Flying Man (mainstream social media caliber 540w+ fans, same below), Goat Goat and Grey Wolf (2,800w+ fans), Cute Chicken Squad (990w+ fans), Quantum Team, Balala Fairy (300w+ fans), Bakken Bear (close to 400w fans), Armor Warriors (1,600w+ fans), etc.

1) Looking at the methodology of operating IP, the company carries out full life cycle management, from planning to commercialization, and the studio is responsible for the results to improve the IP success rate; it also operates the entire industry chain, using animated series and movie content as the starting point for IP development, using diverse media such as long and short video platforms, theaters, and television media as communication channels, and various commercialization methods such as toys, babies, and licensing as a way to achieve value, ultimately increasing the potential power of IP content and commercialization capabilities. 2) Looking at the moat of the company's IP operations, the company has built various top IPs such as “Happy Goat and Grey Wolf”, “Super Flying Man”, “Armor Warrior”, “Balala”, and “Quantum Team”. Judging from past cases, we believe that the company has the content, commercial power, and innovation power to build IP.

Trendy game business: Lay out the booming trendy game business to leverage the young market. The company actively adapts to new changes in the toy market and launched the “Infinite Fun” brand, which focuses on trendy games, and the “Weiss Building Blocks” brand, which focuses on building blocks.

Among them, the “Infinite Fun” brand has reached cooperation with well-known corporate brands such as Miha Tour, NetEase, and Tencent to further develop trendy games products around well-known IPs and multi-category systems. They have successively developed and launched products in categories such as Blind Box, Jenga, and Mengye, to continue to bring users a richer and more emotionally valuable product experience.

Maternal and child business: Domestic and foreign brands lay out the infant business to contribute revenue & profit. The international brand “Babytrend” is deeply involved in foreign markets, focusing on the mother and child travel goods scene, and becoming the industry leader; the domestic brand “Aobai” has evolved from toy diffraction to various categories of mother and child products, and has developed into an all-round brand for mother and child.

Investment advice: We expect the company's total revenue for 2024/2025/2026 to be 2.741/3.083/3.387 billion yuan, with year-on-year growth rates of 0.1%/12.5%/9.9%, respectively, and net profit to mother of 0.103/0.196/0.293 billion yuan respectively, with year-on-year growth rates of 9.9%/90.7%/49.5%, respectively. Corresponding to the current stock price of 25/26 PS is 3.7/3.3 times, and PE is 57/38 times.

Risk warning: the risk of a long IP incubation cycle and high investment but unstable return; the risk of increased market competition; the risk of rising shipping costs; the risk of rising raw material costs, etc.