Introduction to this report:
The company is the largest cinema brand in the country, with a market share of more than 16%. Shanghai Ruyi has become the controlling shareholder of the company and is expected to join forces with the company's various businesses to become the king of the film industry chain.
Key points of investment:
Ruyicheng is a shareholder. Business collaboration can be expected. It was covered for the first time, and was rated as an increase in holdings. Shanghai Ruyi is expected to become the controlling shareholder of the company, with a shareholding ratio of 20%. Ruyi's advantage lies in film and television investment and distribution, and participation in the production of many high-grossing movies and series such as “Hello, Li Huanying,” “The Moon Alone,” “Langya Bang,” and “The Legend of Qianyue”. Wanda Film's advantage lies in its leading cinema market share, and the two sides are expected to achieve strong control over the film industry chain.
We forecast EPS for 2023-2025 to be 0.56/0.69/0.81 yuan respectively. The target price is 18.52 yuan based on comparable company valuations, corresponding to the target market value of 40.355 billion yuan.
The largest cinema brand in the country, far ahead in box office revenue. As of September 30, 2023, the company has opened 877 cinemas in China, with 7,338 screens, including 709 direct-run cinemas and 6,159 screens. The box office of its own cinemas ranked first in the country, with a market share of over 16%, leading the second place by more than 12pct, with an absolute advantage.
Under the “split distribution” trend, strong alliances are more effective. At present, China's film market has begun pilot split distribution. Producers directly agree on distribution ratios with theaters, which is beneficial to leading producers with strong production capabilities. Joining hands with Ruyi, the company may be able to have a differentiated layout in the context of branch distribution, and build a unique cinema brand with many cinemas as the cornerstone.
Both parties have rich IP reserves and sufficient potential for copyright operations. The company has produced popular IP movies such as the “Chinatown Detective” series and the “Mistake Murder” series. Shanghai Ruyi owns the copyright for top series such as “Langya Bang” and “The Legend of Qianyue”. At the same time, China Ruyi (00136.HK), the controller of the agreement between Ruyi Film and Television, owns the Pumpkin Film Platform. The business collaboration between the two sides hopes to strengthen copyright operations.
Risk warning. The movie box office fell short of expectations, and business collaboration fell short of expectations.