Light Media was founded in 1998 and has been deeply involved in the film and television industry for more than 20 years. It is currently the leading private media and entertainment group in China. The company's business lines are being developed in parallel. In terms of live action film and television, it has continued to launch a variety of high-quality films in recent years, with an abundant supply of content; in the animation business, it has two major brands, “Color Strip House” and “Light Animation,” continuously incubates its own IP, and is committed to building a “Chinese mythical universe” system. With the gradual recovery of the film market, AIGC tools represented by Sora are developing rapidly. As a leading domestic IP company, the company is expected to benefit from increasing production progress and accelerating commercial monetization capabilities.
Leading domestic IP companies, AI helps expand monetization channels. As a leading domestic IP company, Light is promoting its animation brands “Color Strip House” and “Light Animation”, continuously incubating its own IP and building a “Chinese Mythical Universe” system to further enhance its influence. In the future, it is expected that IP derivatives will be further increased, the IP image of virtual characters will be enriched, etc. Currently, AI video creation tools, represented by Sora, are rapidly iterating. The film “Our T2 Remake”, created entirely using AI, has proven the ability of AI to generate long works. From the perspective of dubbing, Pika launched the Sound Effects function on March 12, providing a seamless sound effect integration solution. Currently, the company plans to produce 2-3 animated films every year, and it is expected that with the help of AI and other technologies, it may reach a production scale of 4-5 movies per year in the future.
Lay out the film and television industry and tell Chinese stories well with comprehensive strength. The company is a leading private media and entertainment group in China. It is deeply involved in the upstream and downstream of the film and television industry, and has maintained a leading position in the industry. In terms of live action movies, they have continued to be popular in recent years, including “Article 20”; in terms of animated films, boutique animations such as “Big Fish Begonia” and “Nezha's Demon Boy Descendants” have been released, actively developing the “Chinese Mythical Universe” unique IP, and reserve projects “Nacha's Magic Boy Naohai” and “Xiao Qian” waiting to be screened. The company invested in Maoyan Entertainment for 16 years, integrating the film industry chain and leveraging channel synergy to consolidate its position in the industry. Furthermore, the company has launched many landmark works, such as “The Man Is Too Bad”, which broke the domestic film box office record at the time, and “The Demon Boy Nacha” broke the box office record for domestic cartoons. It can be seen that the company is strong in terms of talent recognition, talent development, script creation, film production capabilities, and publicity capabilities.
The film industry has recovered strongly, and the company's performance has improved markedly. The total box office of the movie market in '23 reached 54.92 billion yuan. The '23 Summer Festival, '24 New Year's Day, and Spring Festival all broke through record highs. Consumer demand for watching movies is high, and the recovery trend is remarkable. In '23, the company successfully launched 10 movies that grossed over 100 million dollars, and the supply of content was abundant. The company's total revenue for the first three quarters was 940 million yuan, an increase of 37.15% over the previous year, exceeding the full year level of '22. In addition, Maogan Entertainment expects net profit of 88—93 million yuan to return to mother in '23. The company holds its shares, which will further increase the profit level. The company's gross margin was basically maintained at around 35%-50%, which was superior to the industry level. Apart from the large fluctuation in the management expense ratio, expenses remained relatively stable during the rest of the period.
Maintain a “Highly Recommended” investment rating. The company's live-action film costs are properly controlled, the animated film business has low costs and high flexibility, and the artist brokerage business continues to grow. We expect the company to achieve revenue of 11.86/25.14/2,871 billion yuan in 23/24/25, respectively, +57.1%/+111.9%/+14.2% year-on-year, and achieve net profit of 4.69/10.88/1.75 billion yuan, +26.4% year-on-year respectively.
Judging from the valuation performance, the company expects PE to be lower than the industry average in 2024, not in a high position. Considering that the company's film business performance is flexible, profits are likely to improve further, and the company has a certain layout in the AI field and IP reserve field, we judge that the current valuation of Optical Media is still attractive and maintains a “highly recommended” investment rating.
Risk warning: Risk that the film's release falls short of expectations, offline recovery falls short of expectations, and AI progress falls short of expectations.