2020 and 1Q21 results are in line with market expectations
The company announced 2020 and 1Q21 results: revenue achieved in 2020 was 674 million yuan, a year-on-year decrease of 42.4%; net loss of Guimo was 352 million yuan; net loss of non-return mother was 367 million yuan.
1Q21 achieved revenue of 12.23 million yuan, an increase of 761.6% over the previous year; Guimu's net loss was 16.48 million yuan (1Q20 was a loss of 15.38 million yuan), which was within the range of the previous forecast loss of 15 to 25 million yuan; after deducting non-return mother's net loss of 16.59 million yuan (1Q20 was a loss of 16.96 million yuan). The performance is in line with market expectations.
Development trends
Due to the impact of the pandemic and fluctuations in the project confirmation cycle, profits in 2020 turned into losses. The company's full-year series production, distribution and broadcasting plan for 2020 was severely affected by the epidemic. There were also quarterly fluctuations in production and distribution cycles after the resumption of work. The company focused on quality dramas and production capacity was relatively limited. As a result, only 7 series were broadcast in 2020 (18 series and online movies in 2019), which mainly confirmed the multi-round distribution revenue of the existing series, the co-production project “Trident”, “Rebooting the Far Sea of Thunder”, “Chance of Success”, the variety show “The Dancer”, “The Voice of China's Dream: Our Song”, and a platform drama From “Kata Bingshin in the Jade Pot” and “Order of Mountains and Rivers” revenue. The company's annual film and television business revenue fell 41.7% year on year, and game and related business revenue also decreased 75.6% year on year. In addition, inventory and goodwill accrued impairment losses of 243 million yuan were calculated. Gross margin and net interest rate both turned positive and negative.
Revenue increased in 1Q21, but losses were caused by quarterly fluctuations in the project confirmation cycle. The company's revenue recovered in 1Q21, mainly due to the year-on-year increase in revenue from the online movie “Kirin Fantown” and artist agency revenue. However, since it was confirmed that 1Q21 revenue items were still few and revenue costs were mismatched, the gross margin for 1Q21 was 18.2%, lower than the 23.8% level for the whole of 2019. At the same time, the company's financial expenses increased, and provisions for bad debts due to accounts receivable were taken into account, resulting in a net loss rate of 134.7% in 1Q21. We believe that due to the impact of the epidemic, the filming and broadcasting progress of the film and television industry and corporate projects is still recovering.
A number of projects are being prepared, and follow-up progress is being monitored. The company has completed production or is currently in post-production projects such as “One River of Water”/“Battle of the Epidemic”/“Breaking the Wolf”/“Two Conjectures of Marriage”/“Bones of Summer”/“Here Comes Dad”/“Sword Laugh”/“City of Flowing Light”/“Summer of Time Divided”/“Wild Goose Back to Town” (“Killing the Wolf” extravaganza)/“Begonia Mansions”; the company expects “Zichuan” and “Despicable Me” to launch on 2Q21 and 4Q21 respectively.
We have determined that several projects are expected to confirm revenue in 2021, but under the new revenue guidelines, the company's future series revenue confirmation may be more dependent on buyers' scheduling and scheduling. It is recommended to keep an eye on the launch progress of key projects in the future.
Profit forecasting and valuation
We lowered our 2021/2022 net profit forecast by 16.6%/12.1% to $169/187 million, considering that the company's film and television projects confirmed revenue volatility was higher than our previous expectations. The company's current stock price corresponds to 16.4/14.9 times P/E in 2021/2022. Maintaining the neutral rating, the target price was lowered by 16.4% to 5.0 yuan, corresponding to 14.0/12.7 times P/E in 2021/2022, and there is 14.7% room for decline from the current stock price.
risks
Key projects fell short of expectations; downstream demand was weak; regulations were further tightened; and new business progress fell short of expectations.