Chinese Confucianism: V-shaped performance reversal, the oversold film, television and entertainment industry has ushered in bottom layout opportunities
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Text/Seeing gold in the sand
Last night, China Ruyi (00136.HK) released an eye-catching positive profit announcement. Strong growth once again exceeded market expectations. From the perspective of long-term growth potential, the company has sufficient momentum to release performance, has stronger alpha income possibilities, has greater room for value return, and has a greater chance of ushering in the “Davis Double Click” in which performance and valuation will increase simultaneously.
1. Strong performance growth,FundamentalsContinuous improvement
1. Revenue and net profit increased significantly,Diversified layout opens up room for growth
Benefiting from the emergence of many hit film and television works and the rapid development of the game business, the latest profit announcement shows that Ruyi’s unaudited revenue in 2023 is expected to reach approximately RMB 3.45 to 4 billion, compared with approximately RMB 1.32 billion in the same period in 2022. Yuan increased significantly by approximately 161.4% to 203.0%; adjusted profit was approximately RMB 9.3 to 1.08 billion, an increase of approximately 257.7% to 315.4% from approximately RMB 260 million in the same period of 2022, demonstrating extremely strong profitability.
Looking at the performance of the past three years, the reason why Ruyi has achieved substantial improvement is largely due to the comprehensive layout of China Ruyi in film and television production, streaming media, games and theaters under the leadership of new management. In the past few years, the company’s business development has taken on a new look. Film and television production (Ruyi Pictures), streaming media (Pumpkin Movies), games (Jingxiu Games) and other businesses have achieved long-term breakthroughs in intrinsic quality, and have all achieved good growth. As these growth curves continue to glow with growth vitality, Ruyi is expected to exert the “flywheel effect” to achieve high-quality growth.
2. Acceleration of content supply, film and television businessCatalytic performance release
In the era of “content is king”, the ability to grasp high-quality films is the key for film companies to form core competitiveness in the fiercely competitive market. Ruyi has formed a sustainable and verified high-quality film production model and built strong market competition barriers.
According to Maoyan Professional Edition statistics, in 2023 China Ruyi produced movies such as “Warm”, “Keep You Safe”, “Exchange Life”, and “Gentle Shell”, with a cumulative box office of 2.023 billion; it also co-produced movies with a cumulative box office of 5.531 billion. .
In the Spring Festival of 2024, four movies with the participation of Chinese Confucianism, “Article 20”, “Hot and Furious”, “Flying Life 2” and “Bear Infested: Reverse Time and Space”, occupy the top 4 in the Spring Festival. According to Maoyan Professional Edition statistics, the final box office of the four films invested by Ruyi during the Spring Festival is expected to exceed 11 billion.
In terms of TV dramas, China Confucianism will produce and release “Nine Roads of Love” and “My World of Fireworks” in 2023. The costume detective feature “The Case of Di Gong of the Tang Dynasty” will be released during the Spring Festival in 2024.
3. The reserve of high-quality content continues to increase, which is expected to continue to benefit and drive performance growth.
Judging from the company’s existing film and television reserves, Ruyi still has many “good cards” in its hands, covering multiple categories such as movies, TV series, animated films and games, bringing new room for performance growth to the company.
The upcoming films of Ruyi Pictures include the war epic blockbuster “Reinforcements Arrive Tomorrow”, “White Snake”, the third part of the “White Snake” series co-produced with Chasing Light, and “Journey to the West: The True and False Monkey King”.
In terms of film and television dramas, the Republic of China drama “Storm Chaser” is currently being screened on CCTV and iQiyi, and “My Altay”, the first full-length Chinese drama shortlisted for the main competition of Cannes TV series, is to be released; in addition, “The Prosecutor and the Boy”, “Darkness” “Confession” will be launched one after another.
In terms of games, in addition to the continued sharing of the previously launched games “Chasing the King in Troubled Times” and “Legendary World”, “World Qiyuan” and “Ragnarok: Love Is Like First Meeting” will be launched this year.
2. Growth flywheelAccelerate rotation,Continue to expand industry advantageslong-term potential highlighted
The “flywheel effect” refers to the fact that each business sector is like an interlocking gear. It takes a lot of effort to turn the gear set from stationary to rotating, but once a gear starts to rotate, the entire gear set will rotate faster and faster, every time Each rotation provides potential energy for the next rotation. The key to Disney’s ability to achieve both dreams and wealth lies in the flywheel effect, with multiple business departments working closely together.
1. Acquisition of Wanda Film achieves upstream and downstream business synergy, expands competitive advantages, and manifests the flywheel effect
As Ruyi joins hands with Wanda Film to open up the film and television industry chain, becoming its right-hand man and accelerating its rotation; at the same time, the company continues to promote the diversified realization and value-added layout of IP, and the flywheel effect begins to gradually emerge.
Wanda Movies is truly the largest theater chain in the country. As of December 31, 2023, it has 905 theaters and 7,546 screens in operation in China, with a cumulative market share of approximately 17%.
After the acquisition of Wanda Film, “China Ruyi + Wanda Film” has become a “giant aircraft carrier” for the entire film and television consumption industry chain integrating production, distribution, theaters, streaming media, derivatives, and games. Ruyi has outstanding production and distribution capabilities. With Wanda’s theater chain, it will be even more powerful, ensuring the distribution efficiency of high-quality works at the downstream end, further improving Ruyi’s content moat and increasing the chance of hits.
2. pursuelong termismgathering film and television game professionals to create high-quality content with originality
“Content is king” has become the main engine driving the current film and television market. Ruyi can continue to create popular content because it has always adhered to the long-term thinking of “content is king”, which can be said to be engraved in the blood of Ruyi.
Ruyi, which pursues word-of-mouth content, is one of the earlier companies to implement the producer-centered system. Through the “producer-centered system”, the industrial production process of film and television works ensures that the cost is controllable. Since its establishment, the Ruyi Pictures production team has invested in the production of hundreds of film and television works, and has won the Feitian Award and the Golden Eagle Award many times. , Magnolia Award and other awards.
2) The founding team of the company has similar concepts, and none of the core members have been lost since its establishment, showing high stability. At the same time, the company’s main producers have many years of experience in the industry and have the ability to accurately grasp market demand and subject selection. For example, Ms. Chen Zhixi, the former executive director and current chairman of Wanda Film, has produced films with a box office of tens of billions. The executive director, Mr. Zhang Qiang, has 25 years of industry experience and has produced well-known films such as “China Partner” and “To Our Fading Youth”. Film.
In addition, Ruyi is good at recruiting new people, so that the team concept can be passed on and further enhance stability.
3) In terms of the game sector, although Ruyi has only been in the game for two years, its head Gong Qiao has 20 years of experience in the game field. He has been fully involved and deeply involved in everything from game development and operation to game e-sports and industry investment. Under his leadership, the game team was composed of elite soldiers from the beginning, which also provided full guarantee for the rapid rise of Jingxiu Games’ game business.
At the same time, Tencent also provides talent support. Yang Ming, head of the domestic distribution line of Tencent’s interactive entertainment business group, has joined the board of directors of China Ruyi as a non-executive director. As a veteran of Tencent’s game publishing business, Yang Ming has participated in the research and development of “League of Legends”.
3. Based on the core advantages of IP content, diversify operations to expand long-term growth space
In the first half of the long run, chasing high-quality content is a means to stimulate short-term growth. In the second half of the stage, its core competitiveness is not just a single hit work, but a more systematic and integrated thinking, focusing on all aspects from the IP content end, distribution and screening end, and IP monetization end, in order to build A solid moat for the entire industry chain.
Jingxiu Games, a subsidiary of Ruyi, is vigorously developing its game business with the support of Tencent. It also provides marketing and promotion services to Tencent and uses Ruyi’s accumulation in film and television streaming media to achieve business connections with the game field and obtain revenue. The company’s previous announcement stated that as of October 2023, Jingxiu Games had completed 34 of the above-mentioned additional marketing service projects.
In addition to the game business, China Ruyi also plans to explore the business of IP ecological operations. China Ruyi’s previous announcement showed that through the strategic cooperation between Haichang Ocean Park and Ouhua Entertainment, it is expected to further open up the entire process of IP monetization.
After the official announcement of the animated film “Journey to the West: The True and False Monkey King”, the related creative documentary and the jointly created ceramic mug were launched online along with the movie poster. This also shows that Ruyi has begun to try to operate film IP in the long-term from upstream to downstream. At the same time, it is expected to access Wanda Film’s huge offline business ecosystem and user scale to achieve long-term development and monetization of IP.
4.Benefit from industry boomEmpowering AIGCbringReduce costs and increase efficiency, future business is full of imagination
The core logic of deterministic investment opportunities lies in two points: first, the certainty of the industry’s prospects, and the second, the certainty of the company’s performance. China Ruyi’s performance will continue to benefit from the industry’s unexpected growth opportunities.
With multiple supports at the policy level and the continued recovery of the consumer market, the domestic film market is still in a state of accelerating growth. The Spring Festival period in 2024 will hit a record high, which will also provide solid support for Ruyi’s growth space expansion in 2024. The regulatory policies of the domestic game industry remain stable and game licenses are issued on a regular basis, driving the continued recovery of the domestic game market.
As a comprehensive audio, video, and text industry, the film and television industry is a high-quality implementation scenario for generative AI. The long-term significance of Sora Video is to release the production capacity of high-quality works (especially in the animation/animation field with high industrialization processes), which is expected to reduce the production costs of film, television and game business, and fully develop the value of IP.
4. The long-term fundamentals are good. Can Confucianism return to the “100 billion club”?
If combined with factors such as industry development trends, Ruyi’s competition barriers, valuation levels, stock price trends, and capital dynamics, Ruyi’s current stock price may be at the bottom of the market, and it has ushered in good long-term layout opportunities.
1. The valuation is near a historical low, and the company’s intrinsic value is seriously underestimated.
Judging from the stock price performance, it has experienced a wide range of fluctuations for more than half a year since August 2023. During this period, Ruyi’s revenue has continued to grow and net profits have been released at a high speed. The stock price trend is obviously not consistent with the fundamental performance.
If we use the PE method to conduct valuation analysis on the company and refer to the valuations of major film, television and entertainment companies listed on Hong Kong stocks, US stocks and A-shares, the PE valuation range is 36x. According to the current exchange rate, the current corresponding market value of Ruyi is at least 42.2 billion Hong Kong dollars, and the corresponding stock price per share is at least 3.64 Hong Kong dollars, which is still 107% of the current stock price.
2. The stone from other mountains: ConfucianismHow likely is it to replicate the Disney Way?
Disney has always been a myth of IP monetization. Its revenue structure covers four major sectors: TV and Internet business, theme park resorts, film entertainment, derivatives and games, especially new and old IPs such as Mickey Mouse in the 1920s and today’s Marvel. Collaboration brings continuous business returns.
Although Ruyi and Disney are at different stages of development, after hundreds of years of development, Disney already has a fairly mature market for film and television IP, streaming media and derivatives consumption. Looking back at the development history of Confucianism and Disney, we can still find the following three points of comparability between Confucianism and Disney:
1) Have strong film and television production capabilities and a wide audience. Disney has created an impressive image in both animated and live-action films for decades, reaching a wide audience of all ages. Disney has also acquired Miramax Pictures, Pixar Animation Studios, Lucasfilm, and Fox Pictures, and has mature film and television production capabilities for various types of movies.
2) It started with IP and has rich reserve resources to help get involved in the entire IP industry chain. In the course of decades of development, Disney has built a grand Disney family, including the Mickey Mouse family, Disney princesses, etc., and through the acquisition of Lucas and Fox, it has included the Star Wars series and Marvel, forming a rich IP matrix.
3) Strong downstream distribution channels. In the cable television era, Disney acquired American broadcaster ABC and ESPN sports channels. After entering the Internet era, Disney relied on Disney+ and Hulu to lay out the streaming media field.
In terms of film and television production, Ruyi’s leading ability to create and output high-quality content is self-evident. Ruyi’s series of leading IPs represent the memories of a generation in China, and its IP consumption potential is expected to continue to be released. In recent years, Ruyi has entered multiple markets such as animated movies, games, and IP derivatives. China Ruyi owns the online streaming platform Pumpkin Movies and the offline theater chain Wanda Movies, achieving large-scale coverage of online and offline traffic portals.
Similar to Disney’s IP development model, China Confucianism may be able to successfully copy Disney’s successful path in the future. With film and television production as the cornerstone, it can extend outward into multiple development paths (animation, games, derivatives retail), and be fed back by these businesses. , to maximize the value of IP.
3. It is expected to usher inThe “Davis Double Click” where valuation and performance resonate
Ruyi’s growth is certain. In the short term, the film and television business will catalyze the release of performance, and the game layout will usher in a harvest period. In the medium term, the company will benefit from the upstream and downstream business synergy of “Ruyi + Wanda Film” and the AI technology revolution, driving its own business upgrading and expansion. Fundamental growth driven by cost reduction and diversified layout.
As for whether Ruyi can return to the “100 billion club” in the long term, we will further observe Ruyi’s IP realization and value-added potential. The current market value of Disney is approximately HK$1.64 trillion. If Ruyi IP realizes diversified and stable growth, it may become the Chinese version of Disney and achieve a significant increase in market value.
In summary, the “Davis Double Click” of China’s Confucian valuation and performance resonance is worth paying attention to. Especially after the acquisition of Wanda Film, the development of Chinese Confucianism has entered the next stage.
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