Key points of investment:
Company profile: The only listed company under Shanghai Film Group. The company is mainly engaged in cinema screening, cinema line and distribution business. In March 2023, it acquired 51% of the shares of Shangshingyuan held by the controlling shareholder to enter the big IP development business. In the first three quarters of 2023, the company achieved revenue of 629 million yuan, +88.2% year-on-year, recovering to 78.0% in the same period in 2019, net profit of 125 million yuan, turning a year-on-year loss into a profit and recovering to 102.3% in the same period in 2019. The overall recovery of the film market contributed to improved performance.
The IP development business has broad prospects. The company has 30 exclusive IPs and 30 non-exclusive IPs, rich IP reserves, and most of them are classic IPs created by master creative teams. They have rich characters, rich story lines, and a complete worldview, so they are widely distributed and have a large audience. Since 2023, the company has established three major IP business development models: “IP+ commercialization licensing”, “IP+ game interaction” and “IP+ marketing authorization”, with good results.
We expect IP business revenue to reach $0.6 billion, $230 million and $360 million in 2023-225, which will be an important increase in the company's total revenue.
The main film industry is recovering steadily. The development of international film markets in the US and Japan shows that there is continued momentum for the recovery of the film market after the epidemic. According to PwC's forecast, the compound growth rate of China's movie box office revenue will exceed 20% in the next five years. Looking forward to the future, we expect that, driven by the recovery of the film market and in the context of the company's improved management, the company's film business will also recover steadily. The pace of recovery is basically in line with the overall market.
Investment advice: We believe that with the growth of the IP business, the recovery of the film business, and the support of high-quality shareholders' resources, the company's performance will reap good results. It is estimated that the company's net profit for 2023-25 will be 159 million yuan, 286 million yuan and 374 million yuan, +147.6%, +79.7% and +30.8% over the same period last year. ROE and gross margin indicators will improve steadily. First coverage, giving a “buy-A” rating.
Risk warning: The IP development business falls short of expectations, the recovery of the main film industry falls short of expectations, etc.