Looking back, driven by policies such as "cultural powerhouse" and "cultural overseas expansion", the media sector is expected to enter a stable period of high-quality content online, as it is an industry where demand is significantly driven by supply, and its fundamentals are expected to improve.
According to the Futu Securities APP, China Great Wall Securities released a research report stating that the current performance of the media industry is relatively flat, with a slight decline in industry profitability. The valuation of the media sector has elasticity. However, by firmly focusing on the fundamentals, as policies improve and AI technological capabilities continue to evolve, the quality, richness, and innovation of content supply in the media internet-related industry are expected to continue to rise. This will drive the continuous improvement of the industry's business climate, and it is recommended to focus on sectors and companies with strong future performance certainty.
China Great Wall's main points are as follows:
The performance of the media industry is relatively flat, and industry profitability has declined.
In 24Q3/24M10, Shenwan Chuanmei Industry saw price changes of 23.06% and 5.16% respectively, ranking 6th and 5th in Shenwan's primary industries. The bank believes that they mainly benefit from the improved sector sentiment driven by policy and advancements in AI application. In terms of performance, in 24Q3, the Shenwan media industry achieved revenue of 121.7 billion yuan, a 3.2% year-on-year and quarter-on-quarter decrease; achieved a net income of 6.568 billion yuan attributable to the mother, a 37% year-on-year decrease, with the decline continuing to widen since 24Q1. The media industry's performance is relatively flat, and industry profitability has declined. By the end of 2024, the sector's valuation will gradually switch to 2025, with the current 2025 media valuation at only 19.95x.
Looking ahead, (1) driven by policies such as "cultural powerhouse" and "cultural overseas expansion", the media sector is expected to enter a stable period of high-quality content online, as it is an industry where demand is significantly driven by supply, and its fundamentals are expected to improve; (2) driven by consumer promotion policies, the macroeconomic conditions are expected to marginally improve; (3) with continuous iterations of large-scale underlying capabilities, the AI visual application effects are expected to benefit, driving the positive improvement in domestic AI application users' mindset, thus accelerating the commercialization process of AI applications. This is expected to bring valuation elasticity to the media sector.
Gaming Sector: In Q3, the industry scale reached a new high, and the sector maintained its resilience.
In 24Q3, the actual sales revenue of the Chinese gaming market reached 91.766 billion yuan, an increase of 22.96% month-on-month and 8.95% year-on-year, reaching a historical high. The actual sales revenue of domestically developed games in the overseas market of our country reached 5.169 billion US dollars, a year-on-year increase of 21% and a month-on-month increase of 15%, significantly faster than in 24Q2. Driven by this, the gaming sector achieved revenue of 23.608 billion yuan in 24Q3, a year-on-year growth of 6.3% and a month-on-month growth of 4.2%, maintaining strong resilience.
Recommendations to focus on (1) Game Overseas Expansion: Beijing Ultrapower Software; (2) Solid Fundamentals: Kingnet Network, 37 Interactive Entertainment Network Technology Group, Giant Network Group; (3) Turnaround from Difficulties: Perfect World.
Movie Theater Line Sector: Box office in 24H2 fell short of expectations, looking forward to the performance of top content in 25.
The summer box office in China continued to fall below expectations, indicating a decrease in industry prosperity. Due to the lack of high-quality top content releases, the number of blockbusters has significantly decreased, leading to lower-than-expected box office results since the summer season. Looking ahead, the expected content supply is likely to drive industry growth. Currently, key films for the 2025 Chinese New Year holiday are scheduled for release one after another. According to Maoyan Professional Edition, "The Investiture of the Gods Part Two: War in the Fire Kalpa" and "Boonie Bears: The Wild Life" are both scheduled for release on January 29, 2025. Additionally, many high-quality films such as "Detective Tang 1900," "Ne Zha: The Devil Child in the Sea," "Operation Red Sea," etc., are expected to be released during the Chinese New Year holiday, anticipating the stabilization and rebound of the industry index and related company performance driven by new product releases.
Advertising Marketing Sector: Macroeconomic downturn puts pressure on revenue and profit, with top companies maintaining resilience in performance.
The advertising marketing sector achieved revenue of 41.7 billion yuan in 24Q3, a year-on-year growth of 1%, with a 3% decrease in growth rate month-on-month. The bank believes that the main reason for the month-on-month decrease in revenue growth in the advertising marketing sector is the macroeconomic pressure in China in 24Q1-3, with insufficient domestic consumer demand leading to tight budgets for upstream advertisers. In addition, affected by operational leverage, the advertising marketing sector achieved a gross profit of 4.815 billion yuan in 24Q3, a 10% year-on-year decrease, with a gross margin of 12%, a 1.41 percentage point year-on-year decrease. Looking ahead, the bank believes that with the continuous introduction of domestic incremental consumption promotion policies, China's macroeconomy is expected to gradually improve, with the industry's revenue and profits expected to reach a turning point. In addition, top companies in the industry are maintaining resilience in performance, and it is recommended to focus on companies such as Focus Media Information Technology and BlueFocus Intelligent Communications Group.
Investment advice
Related Symbols: Beijing Ultrapower Software (300002.SZ), 37 Interactive Entertainment Network Technology Group (002555.SZ), Kingnet Network (002517.SZ), G-Bits Network Technology (603444.SH), Perfect World (002624.SZ), Focus Media Information Technology (002027.SZ), Wanda Film Holding (002739.SZ), Beijing Enlight Media (300251.SZ).
Risk warning: macroeconomic fluctuations risk; policy risk on the content side of the media industry; AI+ application landing below expectations; content monetization in the media industry falling short of expectations.