Event description
According to China Literature's semi-annual report for 2022, 2022H1 achieved an operating income of 4.087 billion yuan, a slight decrease of 5.9% over the same period last year, and a net profit of 666 million yuan for Non-IFRS, an increase of 0.2% over the same period last year, which is basically in line with expectations. During the reporting period, the company takes measures to improve operational efficiency and optimize the cost structure, whose strategic significance precedes financial value, and the profit space of the company should be paid attention to.
Event comment
The cost reduction and efficiency strategy makes the cost side improved, the revenue side short-term downward, optimistic about the company's long-term profitability. The management expense rate of 2022H1 company is 13.6%, down 1.0% from the same period last year, which is due to the reduction of R & D expenditure; the sales expense rate is 27.2%, down 3.9% from the same period last year, which is the reduction of promotion expenditure of online business. The relief of pressure on the cost side is one of the reasons for the short-term decline on the income side.
1) in terms of online business, 2022H1's revenue reached 2.307 billion yuan, down 9.2% from the same period last year. Under the dual effect of reduced promotion efforts and free reading drainage, the average number of households paying monthly fees has dropped 12.9% compared with the same period last year; the cash efficiency of free reading business has also slowed down due to the downward impact of the macro advertising market. However, even if users' access to related marketing expenses is reduced, 2022H1's own platform and Tencent's self-owned channel ARPPU still achieve year-on-year growth of 4.5% and 22.7% respectively. ARPPU is up 6.6% from the same period last year. We believe that the supply and demand cycle of paid reading driven by high-quality content is gradually forming, and the traffic realization potential of free reading is expected to be released in the future.
2) in terms of copyright business, 2022H1's copyright operating income reached 1.731 billion yuan, down 0.5% from the same period last year, mainly due to the decline in revenue from proprietary games. The rest of the film and drama, copyright licensing revenue grew steadily. 2022H1 Xinli Media's revenue was 967 million yuan, an increase of 44.9% over the same period last year, but its net profit decreased by 28.4%. The launch of film and television works in the second half of the year is expected to improve the profit side.
Relying on high-quality IP and the perfect industrial chain of each track, there is still a lot of room for the appreciation of IP derivative business.
The content supply side continues to make efforts, accumulate high-quality content and cultivate high-quality content to continuously strengthen the company's core competitiveness. During the reporting period, the company's online literature platform added about 300000 writers and 600000 novels, adding 16 billion words, contributing a steady stream of high-quality content to the company's IP ecology. At the same time, the company accelerates the incubation of certain types of boutique content: 2022H1, the company has its eye on the upward potential of sci-fi themes and carries out a series of promotion and incubation activities around sci-fi themes, making it the fastest-growing reading category on the platform. The company's mature operation ensures a stable supply of high-quality content, high user stickiness and mature payment habits will further consolidate the company's IP full-format development.
IP visualization works and derivatives continue to bring forth the new, reflecting the continuous enhancement of the company's IP operation capacity. High-quality text content continues its vitality in the form of. In the field of film and television, 2022H1 has launched film and drama works such as "the World" and "Heart residence", and the long-term development capability of IP series is becoming more and more mature. In terms of animation, the company's "Star change" and "Wushu Qiankun" two new films have been ranked first in Tencent's video 2022H1 new online animation collection. Cartoon production capacity further increased, the company and Tencent animation 300 parts of the network text and animation reform plan to promote layer by layer, there have been more than 170 cartoon works online. In terms of games, 2022H1 "fighting the firmament", "Night naming" and other IP have found adaptation partners, the future commercial value can be expected. In the field of derivatives, the company is the first to handle the Medusa statue of "Touro mainland", with a GMV of 5 million yuan. In the future, the landing of various forms of derivatives of each head IP is expected to form a new growth curve. IP long linear cultivation and multi-scene development will further improve the company's text IP related derivative system and activate the potential value behind the text IP.
Risk hint
1. Free reading is less than expected risk in business development.
2. The recovery of advertising industry and film and television industry is not as good as expected.