Incidents:
On August 15, Reading Text Group announced its 2022 interim results report. During the reporting period, the company achieved revenue of 4,087 billion yuan, a year-on-year decrease of 5.9% compared with 4.342 billion yuan in the same period in 2021; gross profit was 2,146 billion yuan, a year-on-year decrease of 6.2%. Of this, online business was $2,307 million, and copyright operation and other revenue was $1,780 million. In the first half of 2022, the average MAU of the company's own platforms and self-operated channels was 265 million people, an increase of 13.8% over the previous year.
Brief review:
IP creation is steady and steady, and there are many popular styles of visual upgrading
As of the first half of 2022, the company added about 300,000 writers and 600,000 novels to its online literature platform, adding more than 16 billion words. At the same time, the company focused on the essence of the online literature business and accelerated incubation of specific high-quality content. The average monthly active users of its own platform products and self-operated channels were 265 million, an increase of 13.8% over the previous year. Among them, the average number of monthly paying users was 8.1 million, a decrease of 12.9% over the previous year. In June 2022, the average number of daily active users of the free-to-read business was around 14 million. In terms of IP visualization, the TV drama “The World of Man” set a new high in the ratings of CCTV-1's golden TV series in nearly 8 years. The movie “This Killer Isn't Too Cold” grossed 2.6 billion yuan, ranking 2nd in the 2022 Spring Festival box office, and the animation “The Stars Change” went live with 4 billion hits. In addition, premium IP series such as “Celebrate the Years After”, “My Son-in-law”, and “Dafeng Daredevil” are also being prepared and developed, which will further enhance the influence of the company's IP culture.
Focus on long-term business, control costs and improve efficiency to relieve environmental pressure
The company's revenue cost in the first half of 2022 was 1,941 billion yuan, a decrease of 5.5% over the previous year, mainly due to reduced amortization of intangible assets of the company's content copyright and reduced content costs; gross profit was 2,146 billion yuan, down 6.2% year on year, gross margin was 52.5%, 52.7% in the same period last year, and the company's profitability remained unchanged. Despite poor overall macroeconomic conditions and many challenges in the first half of 2022, the company took a long-term approach and actively controlled costs and improved efficiency. Among them, non-IFRS operating profit increased 8.2% year-on-year to 694 million yuan, and the non-IFRS operating margin increased to 17.0% from 14.8% in the same period last year.
Looking ahead to full IP link development to create a broad and high-quality IP universe
Online literature begins with words but is not limited to words. The company uses technology to empower and enrich digital entertainment models such as film, television, animation, and games. Among them, there is no shortage of popular movies and television products such as “Celebrate the Years After” and “The World of Life” that are well known to everyone. In addition, the company also uses IP commercialization and joint promotion. For example, a single Medusa statue of “Breaking the Sky”, which was authorized by the company, sold out when pre-sale opened, and the GMV reached 5 million yuan. Through the IP industry chain business, Reading Text Group has driven the entire industry to achieve full IP link development, and has established an IP universe that serves the spiritual world of users.
Profit forecast and valuation: In terms of revenue, we expect 2022/2023 to achieve revenue of 8405/9.472 billion yuan respectively, up -3.04%/12.70% year on year. We estimate that the company's non-IFRS net profit for 2022/2023 will be 1,49/1,749 billion yuan respectively, with a year-on-year growth rate of 15.29%/23.31%. In terms of valuation, using the PE distributed valuation method, we gave the company a total market value of 40.75 billion yuan in 2022, gave the company a “buy” rating, and gave the current target price of HK$44.3 per share.
Risk warning: As a result of repeated epidemics, the production progress of movies and TV dramas fell short of expectations, and the launch of movies and TV dramas fell short of expectations.