Key investment points:
Market review: from March 14 to March 18, the media sector fell by 0.52%, while the gem index, CSI 300 index and Shanghai Composite Index rose or fell by 1.81%, – 0.94% and – 1.77% in the same period. The media sector ranked seventh in the weekly rise and fall of CS first-class industry classification, and was in the top range, ranking sixth higher than the previous period.
Investment suggestion and rating: the media sector performed relatively well in this period, mainly due to the special meeting held by the financial stability and Development Commission of the State Council on March 16. The meeting emphasized several key points: (1) maintain communication between China and the United States and solve the problem of China concept share supervision; (2) Standardize the platform economy and promote orderly development; (3) Stabilize Hong Kong’s financial market and strengthen regulatory communication between the two places; (4) Prudently introduce contractionary policies and strengthen policy coordination with financial management departments. The meeting made more responses to the issues concerned by the market and boosted market confidence. Especially for media and Internet companies, they have been facing relatively large pressure of regulatory uncertainty in the past few years. The statement of cautious introduction of contractive policies has alleviated the market’s concerns about the future direction of policy regulation to a certain extent. The staff of the State Press and Publication Administration said that at present, the application for game version numbers is still going on normally. In addition, relevant leaders have repeatedly expressed appreciation for the cultural output value of domestic games in public. We think this statement may mean that the issuance of game version numbers will be promoted to return to normal.
On the other hand, the epidemic situation in China began to repeat again, and some cities began to carry out relatively strict personnel mobility control measures, which may have a certain impact on the offline film market and advertising in the short term. According to the cat’s eye professional edition, since March 11, the operating rate of cinemas across the country has continued to decline. So far, it has dropped from 91.83% on March 11 to 52.31%. There are 1.557 million weekly screenings across the country, which is close to the weekly screenings after the resumption of cinemas in August 2020, indicating that the China Film Co.Ltd(600977) market is still facing certain operating pressure in the short term. In addition, the state film administration stressed the need to resolutely implement the decision and deployment of the CPC Central Committee on strictly grasping the epidemic prevention and control, and make every effort to do a good job in the epidemic prevention and control of cinemas, which means that the relatively strict and cautious epidemic prevention policy of cinemas will continue. However, in the medium and long term, with the emergence of the effect of the dynamic zero epidemic prevention policy and the continuous decline of the current severe situation and mortality, the influencing factors caused by the recurrence of the epidemic are expected to gradually weaken.
At the policy level, from the perspective of the “14th five year plan” policies in some areas that have been released, the core development path and guidance have been defined for films, publishing, digital economy, copyright work and TV dramas. The application of virtual reality, 8K HD video, interactive video, immersive video, cloud games, movies and TV dramas, book publishing and other applications in the field of cultural consumption will achieve benign and standardized development in the medium and long term. In terms of valuation, based on the closing calculation on March 18, 2022, the valuation of the media sector is 19.58 times (TTM, overall method, excluding negative values), which is 70% of the average p / E ratio of the sector since January 1, 2017 and 74% of the median, which is close to the valuation level of Q4 in 2018 and at a historically low position. Considering that the current statement of the financial committee will boost the market information to a certain extent, the market risk appetite may rise, and the media sector will be upgraded to the investment rating of “stronger than the market”.
Industry perspective: 1) at present, the game sector is under regulatory pressure. The suspension of edition number leads to a slight shortage of new tour product supply, and the product ranking on the top list is solidified. The edition number pressure will further test the long-term operation ability and sea going strategy of game manufacturers. Head game manufacturers have relatively strong content reserves and advantages in technology and operation. They are easier to be in a leading position in the long-term, diversified and sea going strategy of products, and relying on stock game products can also provide support for current performance when there are few new games online. On March 16, the financial stability and Development Commission of the State Council held a special meeting and said that it would carefully introduce contractionary policies, which may mean that the issue of edition number is expected to usher in the dawn, drive the recovery of new product supply and bring more flexibility to performance. It is suggested to pay attention to the head companies in China’s game industry and give full play to their competitive advantages in the process of supply side reform. At present, the valuation of head game companies is generally less than 20 times, which is located in a historically low range.
2) recently, affected by the repeated epidemic situation in some parts of China, the operating rate of cinemas has declined rapidly again. As of March 20, the total box office in China was only 702 million yuan, which is 1.8 billion yuan lower than that in March 2021. In addition, the state film administration emphasizes to continue to maintain a strict epidemic prevention and control attitude. It is expected that the upstream and downstream of China Film Co.Ltd(600977) industry will continue to face great pressure in the short term, which may further accelerate the clearance of inefficient cinemas, Industry concentration is expected to further improve. Combined with the weekly data of cat’s eye professional edition and lighthouse professional edition, the market share of Wanda cinema and Wanda film investment continues to increase, which has reached more than 20% at present. The improvement is obvious. It is suggested to continue to pay attention to the national cinema and film investment channel leaders. The normalization of the epidemic situation may continue to have an impact on the China Film Co.Ltd(600977) industry, but the market self-regulation mechanism of survival of the fittest will accelerate the clearance of inefficient Cinemas at the cinema line end and alleviate the competitive pressure to a certain extent; On the content side, it is expected to provide more performance space for film and television companies by promoting that film and television companies prefer high-quality products when setting up projects. In addition, after the industry rectification, more explicit restrictive measures are taken for actors’ remuneration.
3) virtual human technology. After the new year’s Gala of many mainstream satellite TV channels in China, virtual human technology has been applied again in the programs of Beijing Satellite TV, Anhui Satellite TV and Jiangsu Satellite TV Spring Festival Gala. Although at present, virtual human technology is still mainly used in Pan entertainment fields such as virtual idol, e-commerce live broadcast, short video and news variety shows, in the future, the application scenario of virtual human technology may be further expanded to intelligent office, social networking, finance, education, medical treatment and other fields. As one of the underlying technologies of the meta universe, virtual human technology has relatively large application space. It is suggested to pay attention to: Perfect World Co.Ltd(002624) , Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , G-Bits Network Technology(Xiamen)Co.Ltd(603444) , Wanda Film Holding Co.Ltd(002739) , Mango Excellent Media Co.Ltd(300413) , Citic Press Corporation(300788) , Guomai Culture & Media Co.Ltd(301052) .
Risk warning: international political situation risk; The risk of repeated outbreaks and virus mutation; The tightening of regulatory policies exceeded expectations; Intensified market competition; Goodwill impairment risk; The quality of output content is lower than expected; The characteristics of project system lead to the fluctuation of the company’s performance
