According to the Zhitong Finance APP, Haitong Securities released a research report stating that the total revenue of the media industry in Q2 2024 was 129.81 billion yuan, a year-on-year increase of 0.8%. The publishing, gaming, and marketing sectors achieved positive year-on-year revenue growth, but the net profit of each sector declined to a certain extent. As a content industry, the game industry has obvious supply and demand attributes. At present, the issuance of game licenses has been normalized. In the second half of the year, with the gradual release of high-quality production capacity and the drive of self-developed new products, leading companies are expected to achieve marginal improvement in revenue and net income. In addition, the Q2 2024 performance of film and television-related companies was affected by the box office performance of the film market. It is recommended to pay attention to the progress of intellectual property, short dramas, and online video models.

Summary of Q2 2024 performance in the media industry: stable industry revenue, slight decline in net profit year-on-year.

In Q2 2024, the total revenue of the media industry was 129.81 billion yuan (a year-on-year increase of 0.8%); the gross margin was 31.03% (a decrease of 0.74 percentage points compared to the previous year); the net profit attributable to the parent was 9.29 billion yuan (a decrease of 33.6% compared to the previous year); the non-recurring net profit attributable to the parent was 8.71 billion yuan (a decrease of 24% compared to the previous year); the net profit margin was 7.15% (a decrease of 2.27 percentage points compared to the previous year). In Q2 2024, the publishing, gaming, and marketing sectors achieved positive year-on-year revenue growth, but the net profit of each sector declined to a certain extent.

Gaming: Stable revenue in Q2 2024, narrowing decline in net profit. In Q2 2024, A-share gaming companies achieved revenue of 26.57 billion yuan, a year-on-year increase of 4.1%, and a net profit attributable to the parent of 2.92 billion yuan, a decrease of 6.2% year-on-year. The non-recurring net profit attributable to the parent was 2.76 billion yuan, a decrease of 13.9% year-on-year. In Q2 2024, the gaming sector maintained steady revenue growth, and the decline in net profit narrowed compared to Q1.

In the first half of 2024, the gaming sector achieved a net cash flow from operating activities of 7.613 billion yuan, a decrease of 5.3% year-on-year. The overall gross margin of the gaming sector in Q2 2024 was 60.96%, which was basically flat year-on-year. The sales expense ratio was 28.56%, an increase of 1.99 percentage points year-on-year, indicating that market competition pressure is still increasing. The management expense ratio and research and development expense ratio of the gaming sector in Q2 2024 were 9.81% and 10.25%, respectively, which were basically stable compared to the previous year.

Gaming: Leading companies have performed well, focusing on the progress of new product launches in the second half of the year.

There are many companies in the game sector, and the individual stocks are highly differentiated. In Q2 2024, the head companies such as Beijing Ultramega Software, 37 Interactive Entertainment Network Technology Group, Zhejiang Century Huatong Group and others still maintained a high growth in revenue and net income. Due to the higher base in the same period last year and fewer new products in the first half of this year, the net income of Kingnet Network and other companies in Q2 2024 decreased compared to the same period last year. Looking ahead to the second half of the year, Haitong Sec believes that as the gaming industry is a content industry, the supply and demand attributes are obvious. Currently, the issuance of game industry licenses has become normalized. With the gradual release of high-quality production capacity in the second half of the year and the driving force of self-developed new products, the head companies are expected to achieve marginal improvement in revenue and net income.

Publishing: Steady growth in revenue and total profit, with a slight decrease in net income compared to the same period last year due to changes in tax policies.

In Q2 2024, the A-share publishing sector achieved revenue of 36.15 billion yuan, a YoY increase of 0.3%, with a net profit attributable to the parent company of 4.59 billion yuan, a YoY decrease of 19.6%, and a non-recurring net profit attributable to the parent company of 4.45 billion yuan, a YoY decrease of 18.9%. The publishing sector maintained steady revenue growth in Q2 2024, and the decrease in net profit was mainly due to the impact of changes in tax policies. According to the Announcement on the Tax Policies for the Transformation of Operating Cultural Institutions to Enterprises in the Cultural System Reform (Finance and Tax [2023] No. 71), the preferential tax policies for operating cultural institutions enjoyed by state-owned publishing enterprises expired at the end of 2023, and the increase in the corporate income tax rate in 2024 caused a decrease in net profit attributable to the parent company. In Q2 2024, the publishing sector achieved a total profit of 6.16 billion yuan, a YoY increase of 3.86%, maintaining a steady growth rate.

Publishing: High dividend yield, highlighting investment value.

Domestic publishing companies are mainly state-owned, with stable operations in the industry. Textbooks and teaching aids and other subdivided categories have rigid demand. Domestic publishing and distribution companies have stable main operations, abundant cash reserves, good cash flow, and high dividend yields. As of the closing price on September 2nd, calculated based on the dividends paid in the past 12 months, the average dividend yield of media publishing companies is 3.40%, with Chinese Universe Publishing and Media Group, Zhejiang Publishing United Group, China South Publishing & Media Group, Anhui Xinhua Media, and Xinhua Winshare also disclosing their mid-term dividend plans in the 2024 interim report, providing these companies with a higher safety margin and highlighting their investment value.

Film and Television: Performance under pressure due to the impact of the domestic film market in Q2 2024.

In Q2 2024, A-share film and television companies achieved revenue of 7.43 billion yuan, a YoY decrease of 11.5%, with a net loss attributable to the parent company of -0.05 billion yuan, a YoY decrease of 108.7%, and a non-recurring net loss attributable to the parent company of -0.14 billion yuan, a YoY decrease of 151.7%. Both the revenue and net profit of the film and television sector in Q2 2024 showed a YoY and QoQ decline, mainly due to the impact of a 28.1% YoY decline in the domestic film market on targeted film-related companies in Q2 2024. In the 2024 interim report, the film and television sector achieved a net operating cash flow of 1.654 billion yuan, a YoY decrease of 68.6%. The overall gross margin of the gaming sector in Q2 2024 was 20.31%, a YoY decrease of 5.6 percentage points; the sales expense ratio was 4.6%, a YoY decrease of nearly 1 percentage point; and the administrative expense ratio and R&D expense ratio were 10.05% and 1.06% respectively, with YoY increases of 0.66 and 0.42 percentage points respectively.

Film and Television: Pay attention to the progress of IP, short dramas, and online video models.

Haitong Securities believes that film and television companies can be divided into two main categories:

1) Film content and theater companies: In 24H1, the net box office of national films was 21.63 billion yuan, a year-on-year decrease of 9.1%; among them, the net box office of 24Q2 was 6.7 billion yuan, a year-on-year decrease of 28.1% and a 55.2% decrease from the previous quarter. Only four companies, Shanghai Film (IP business), China Film (imported films), Beijing Enlight Media (films 'In The Sunshine' and 'Never give up on the dark'), and Huayi Brothers, remained profitable in 24Q2. In the summer of 2024 (July-August), the net box office of national films was 8.52 billion yuan, a year-on-year decrease of 43.4%. Haitong Securities believes that the year-on-year operation of the film industry in the second half of the year is under pressure, and it is focused on companies with key movie release plans or effective development of dual main businesses on a quarter-to-quarter basis.

2) Television-related companies: According to the data of Guodu Media, 125 series were launched in 24H1, including 84 web series and 41 TV series, and the overall number of series launches continued to decline. In 24H1, the state-owned film and television company Ciwen Media proposed a new "1133" development strategic plan, and Zhejiang Huace Film & TV obtained approval for a private placement by the exchange. In July 2024, Huace Film & TV announced its participation in the domestic artificial intelligence large-scale model company, Zhipu Huazhang. In the second half of the year, Haitong Securities actively focuses on the business progress of state-owned film and television companies, and pays attention to the progress of domestic and foreign large model video development, which is expected to increase the quantity of high-quality supply of content companies. In addition, high-quality content will precipitate IP, and the attention it receives from consumers of Generation Z and Generation Alpha will effectively extend the life and improve the monetization efficiency of IP.

Marketing: Achieved revenue growth on a quarterly and annual basis in 24Q2, paying attention to the cash flow situation

Listed A-share marketing sector companies achieved revenue of 42.81 billion yuan in 24Q2, a year-on-year increase of 5% and a quarter-on-quarter increase of 8.6%, with a net profit attributable to the mother of 1.35 billion yuan, a year-on-year decrease of 56.2%, and a non-recurring net profit attributable to the mother of 1.65 billion yuan, a year-on-year decrease of 4.5%. In the mid-year report of 24, the operating net cash flow of the marketing sector decreased significantly to -0.189 billion yuan from 2.53 billion yuan in the same period last year. The overall gross profit margin of the marketing sector in 24Q2 was 11.96%, a year-on-year decrease of 5%; the sales expense ratio was 4.08%, a year-on-year decrease of 0.09%; the management expense ratio was 2.15%, a year-on-year decrease of 0.12%; and the R&D expense ratio was 0.72%, a year-on-year increase of 0.1%.

Marketing: Focus on overseas marketing services and high-dividend stock targets

Haitong Securities recommends actively focusing on overseas marketing service providers. Marketing service companies are committed to providing global marketing and promotion services to customers by building their own channels and relying on overseas high-quality traffic concentration platforms. In addition, some companies have achieved strategic upgrades from 'marketing' to 'marketing + sales'. In 24H1, the leading overseas dragon head BlueFocus achieved a year-on-year revenue growth of 40.3%, and Easypan achieved revenue of 8.8%, still significantly better than the sector's revenue growth rate. In the second half of the year, it is actively focusing on the operating prosperity of leading overseas companies and paying attention to the operating changes of domestic marketing companies such as Focus Media (high dividend rate) with mainly domestic businesses under the changes in the domestic macroeconomy.

24Q2 Fund Holdings Analysis: The 24Q2 fund holding ratio is 0.81%, underweight by 1.15%

The total holdings of the media industry in A shares in Q2 24 was 19.475 billion yuan (down 24.7% from the previous quarter), with a fund holding ratio of 0.81% (up 0.33 percentage points from the previous quarter), a low allocation of 1.15 percentage points (down 0.69 percentage points compared to the previous quarter), and the media sector fund holdings continued to be underweight.

Investment logic and recommended symbols

Haitong Sec believes: 1) The media industry has had a deep adjustment and a long cycle in the previous period; 2) The policy document issued by the State Council on promoting the high-quality development of service consumption is expected to enhance the industry's high-quality supply, further stimulating the demand for cultural consumption; 3) Continuous introduction of new technologies, speeding up content innovation, and exploring new directions.

Recommendations:

1) Hong Kong internet: [Tencent (00700), Kuaishou-W (01024), Bilibili-W (09626), XD Inc (02400)].

2) Marketing sector: [Focus Media (002027.SZ), Easy Point (301171.SZ)].

3) Gaming sector: [Kingnet Network (002517.SZ), Beijing Ultrapower Software (300002.SZ), Zhejiang Century Huatong (002602.SZ), G-bits Network Technology (603444.SH), 37 Interactive Entertainment Network Technology Group (002555.SZ)] and more.

4) Publishing sector: Actively transforming [Southern Publishing and Media (601900.SH), Anhui Xinhua Media (601801.SH), Qingdao Citymedia (600229.SH), Time Publishing and Media (600551.SH)]; high dividends [Chinese Universe Publishing and Media (600373.SH), Jiangsu Phoenix Publishing&Media Corporation (601928.SH), China South Publishing & Media Group (601098.SH)].

5) Film sector: [Beijing Enlight Media (300251.SZ), Wanda Film Holding (002739.SZ), Bona Film Group (001330.SZ)], etc; IP side [Chinese Universe Publishing and Media Group (300364.SZ), Shanghai Film (601595.SH), Zhejiang Huace Film & TV (300133.SZ)], etc.

6) AI field [Kunlun Tech (300418.SZ), Meitu (01357), Zhejiang Huace Film & TV (300133.SZ), Focus Technology (002315.SZ), Guomai Culture (301052.SZ)], etc,

7) Continue to focus on the high-liquidity direction of lottery sector [Guangdong Songyang Recycle Resources (603058.SH)].

Risk warning

1. The progress of domestic AI large model development is not as expected;

2. The progress of content product development of media companies is not as expected;

3. Risk of content regulation for short dramas, mini-games, etc.