Report summary:
Release and screen the layout of the entire industry chain and actively explore IP strategies. Shanghai Film is an established domestic film company. After many asset restructuring, it has gradually developed into a comprehensive state-owned film company integrating distribution, cinema, and online ticketing business capabilities. After the pandemic, the company began to actively pursue transformation, explore the “cinema+” integrated business format, and promote a big IP strategy. The company's main business is film distribution and film screening. It is owned by Shanghai Film Group for a long time, and the shareholding structure is stable for a long time. The actual controller is the Shanghai State-owned Assets Administration Commission, which has a strong state-owned background and resources. In addition, the executive team has comprehensive background and business capabilities, and has rich experience in film and IP development business. The company's financial situation recovered rapidly after the epidemic. According to the public performance report, net profit of 124 million yuan was achieved in 2023, and after adjustments for the same period last year, it was a loss of 328 million yuan, turning a loss into a profit.
The screening business position is stable, and distribution resources have significant advantages. 1) Industry: In 2023, the total box office of national movies (including service fees) reached 54.9 billion yuan, up 83 percent year on year. After epidemic control ended, the industry generally rose, and the market recovery trend was obvious. The 2024 Spring Festival program hit a record high with long holidays+high quality supply. Looking ahead to the whole year, reserves are still abundant. The market is expected to be in the range of 566-60 billion dollars, an increase of 3% to 9% over the previous year. 2) The screening business market position is stable, and the cinema location advantage is remarkable. The company's market share of the Shanghai Union Cinema Line has been leading for a long time. Its position in the industry is stable, and its share of the box office market has remained around 8% for a long time. In terms of directly-managed cinemas, the number is relatively stable and mainly distributed in core locations in Tier 1 and 2 cities. The location advantage is remarkable, and the sales business still has room for further growth. 3) In terms of distribution business, the company collaborates with the Group's film investment business, and will actively participate in leading projects in the future, which is expected to continue to contribute to performance flexibility.
Long-term accumulation of high-quality IPs, exploration of monetization potential in multiple dimensions. According to data from the China Gaming Association, retail sales of authorized products reached 139 billion yuan in 2022, an increase of 1.2% over the previous year, and the IP licensing market space is vast.
The company acquired 51% of the shares of Shangyingyuan Culture in 2023, actively expanding the IP business to seek transformation, developing and operating the entire IP industry chain, actively expanding in the fields of classic IP content renewal, product and marketing licensing, game linkage and licensing, derivatives, digital development, etc. At the same time, it officially launched the “IP Cinema Cooperation Program” in December to promote the “IP+ Cinema” business through deep integration of online and offline methods. On February 29, 2024, the company announced a new iNew strategy to actively embrace the AI wave through the “IPAI Planet Plan”, the vision of upgrading digital intelligence, expansion and integration, and ecological globalization. In the context of the rapid development of AI technology, the company's rich IP reserves are expected to further release value.
Investment advice: We continue to be optimistic about the company's growth. We expect the company to achieve operating income of 791/11.06/1,332 billion yuan in 2023-2025, a year-on-year increase of 115%/40%/20%, and achieve net profit of 1.24/2.58/ 349 million yuan, a year-on-year increase of -/ 108%/35%. The corresponding PE is 108x/52x/39x, covered for the first time, and given a “buy” rating.
Risk warning: box office performance falls short of expectations, market competition intensifies, IP development progress falls short of expectations, etc.