Can the bright and good situation of the film industry continue?

now that the box office is easily over 500 million, it seems to let nature take its course, so what is the reason for the upward movement of the box office base? Can the situation continue? How to treat the risk and investment value of film listed companies?

< strong > I. the film industry may become one of the main beneficiary industries for consumption upgrading and income increase of low-and middle-income groups in China < / strong >

< strong > (1) movies have become an important form of entertainment for residents in second-and third-tier cities to upgrade their consumption < / strong >

in 2012, the national box office totaled 17.07 billion yuan, of which the urban box office was 16.483 billion, up 32.59 percent from the same period last year; the number of urban moviegoers was 461 million, up 29.95 percent from the same period last year.

second-and third-tier cities are the main driving force of box office growth. According to the statistics of the Boehner Research Institute, the number of moviegoers and box office growth rates in second-and third-tier provinces and cities such as Qinghai, Hebei, Anhui, Jiangxi, Shanxi, Ningxia, Inner Mongolia, Hunan, Henan, Gansu and Shandong are higher than the national average, while the data of economically powerful provinces such as Shanghai, Beijing, Tianjin and Guangdong are lower than the national average.

according to the statistics of the top 10 provinces and cities at the box office, the box office increments of Jiangsu, Zhejiang, Hubei, Liaoning and Shandong are higher than the national average.

judging from these statistics, with the improvement of the income level of residents in second-and third-tier cities and the construction of cinemas, the movie-watching habits of residents in these areas are gradually forming.

advantages of movies as the main form of entertainment for consumer upgrading:

< strong > (1), the mass base of video entertainment is solid < / strong >

online video has become the most widely used Internet application in China, which shows that Chinese people have a very high acceptance of video entertainment. Compared with online video, the viewing effect, atmosphere and effectiveness of the movie are better, and it is also more suitable for the collective entertainment of friends and families. In the past, the main reasons that hindered the film consumption were: few cinemas, high ticket prices, and the lack of attractiveness of the film.

< strong > (2), the rapid development of cinema line provides convenience for watching movies < / strong >

in the past three years, the number of screens nationwide has increased from 4097 screens at the end of 2009 to 13118 screens in 2012, an increase of 3.25 times, of which county-level cities have more than 3000 fast screens.

< strong > (3) in the context of inflation, watching movies has become a relatively cheap way of entertainment < / strong >

in 2012, the average ticket price of movies in cities across the country was 35.75 yuan, up 2.04% from the same period last year, which is equivalent to the price of a fast food meal at KFC / McDonald's.

watching movies is also cheaper than entertainment such as KTV, teahouses, performing arts and even sports competitions.

< strong > (2) the increase in income of low-income groups will provide new moviegoers for the film market < / strong >

the 18th CPC National Congress put forward a plan to double income in the next 10 years, and at the same time, the State Council recently replied to the Circular on deepening the Reform of the income Distribution system.

although people from all walks of life hold a cautious wait-and-see attitude on whether the gap between the rich and the poor can be successfully eliminated, there are some phenomena worthy of attention. First, since 2008, there has been a rare concern and discussion about the shortage of migrant workers in China in the past decade, and the discussion about the Lewis inflection point and the disappearance of demographic dividend began to become frequent at this time. Second, the family planning policy has been widely discussed again, and the expectation of policy relaxation has been formed. Third, the fact that the income of several non-mainstream jobs significantly exceeds that of the average white-collar class has sparked widespread discussion. For example, a site income statement at the end of last year was widely circulated on Weibo, and most Weibo users were surprised that their income was higher than their own.

judging from these changes and possible trends, there are two points of great concern. First of all, the narrowing of the gap between the rich and the poor in China is not necessarily the narrowing of the gap between the highest and lowest income earners, but the narrowing of the income gap between middle-income and low-income people is likely to be achieved. Secondly, the substantial increase in income of low-income people in the next few years is predictable, which is not only due to the changing trend of social demographic structure, but also can not ignore the policy guidance role of the Chinese government. (see the analysis of Fu Zhifeng in the Wall Street Journal)

< strong > these low-income people have two characteristics: < / strong >

first, the base is huge. According to 2012 statistics, the rural population is 640 million, accounting for 47% of China's total population; second, there is a lack of entertainment.

the new generation of migrant workers live in cities, but their spiritual and cultural life is poor, and there is almost no other way of leisure except watching TV and playing computer games. Recently there are news reports that ldquo; migrant workers returning home are keen on gambling in order to save face they would rather lose a whole year's hard-earned money & rdquo;. With the implementation of the government-ldquo; urbanization-rdquo; strategy and the growth of the income level of migrant workers, watching movies will undoubtedly become a new way of entertainment for these classes.

two, five factors weaken the project system risk of Huayi Brothers and Light Media, & high growth of ldquo; industry + increase of market share = high valuation & rdquo;

the market is most worried about the project risks of Huayi Brothers and Light Media, even if there are strong films like "Tai?" they will also worry about whether there will be higher-grossing films in the coming year.

We believe that in mature markets like the United States, the risk of project system is indeed the main factor restricting the valuation of film companies, but there are some special circumstances in the Chinese market at this time. This enables Huayi Brothers and Light Media to overcome project risks and achieve sustained and steady growth.

< strong > 1. The whole industry is in the stage of rapid growth < / strong >

China's film market has grown at a compound annual growth rate of 30% in the past 10 years, and we expect it to reach a compound annual growth rate of about 20% in the next 10 years.

first of all, the demand of second-and third-tier cities and the market of low-income people is just beginning to release; second, according to the 2010 guidance of the General Office of the State Council on promoting the Prosperity and Development of the Film Industry, by 2015, we should achieve the phased target of an average annual growth rate of more than 20%.

< strong > 2. The two companies already have the characteristics of platform, absorbing the best resources in the industry < / strong >

Huayi Brothers has always ranked first at the box office of private film companies, while Light Media rose to second place in 2012. As the only two film listed companies, they rely on brand and financial advantages to absorb the best screenplays, directors, actors, schedules and other resources in the industry to ensure the success rate of a single project.

take Huayi Brothers as an example, "painted skin 2" and "Journey to the West" are examples of successful cooperation with other companies.

< strong > 3. The regulatory policy is skewed towards two listed companies < / strong >

the support of regulatory policy is mainly reflected in the schedule. Huayi Brothers and Light Media were the main beneficiaries of the two domestic film protection months in 2012.

< strong > 4, Multi-project and Brand Strategy < / strong >

Huayi Brothers releases about 7-8 films a year, while Light Media releases about 10-15, so that even if a single film fails at the box office, other films can be made up, just as at the end of last year, when "1942" did not meet expectations, the box office of "Zodiac" exceeded expectations, and "Tai?" is the main highlight of LightMedia's films throughout the year.

according to our research on the American film industry, series films are the guarantee of the box office, and Huayi Brothers and Light Media are also gradually building series film brands.

< strong > 5. Extend the industrial chain by using the influence of movies < / strong >

Huayi Brothers is at the forefront of diversified expansion and has begun to reap the fruits. The latest case is Palm Technology. Light Media has also invested in three of the best companies in the industry. The content influence of Huayi Brothers and Light Media gives them an advantage in acquiring stakes in high-quality companies.

< strong > Investment advice < / strong >

We believe that the media industry, as an important industry of consumption upgrading, has great potential for development, but at the same time, we must realize that the current regulatory policy has seriously restricted the development of the media industry. The current profit model project system of media companies has outstanding characteristics of strong and cyclical characteristics. Only by solving the problem of commercialization and ideological conflict can we usher in the long-term investment opportunities of the media sector.

according to the above, we believe that driven by the upgrading of consumption, diversity of channels, copyright protection, relaxation of theme restrictions and increased concentration of the industry, the performance of the film industry can still maintain an average annual growth rate of more than 30% and 40%. We emphasize that domestic films are expected to be released in 2013 & ldquo; counterattack & rdquo;, focuses on Huayi Brothers and Light Media.

< strong > Huayi Brothers: film's leading position is consolidated, diversification strategy is in the forefront < / strong >

the company has been seeking a breakthrough in diversification and is still in the peak stage of capital expenditure. In the next two years, the company will invest 600 million yuan in mergers and acquisitions and 160 million yuan in cultural tourism projects, so the company will also face greater cost pressure. However, due to the diversification strategy in the forefront, the company will continue to obtain the highest valuation level in the film and television entertainment sector. The success or failure of corporate cultural tourism projects and equity investment projects will have a key impact on the investment value of the company.

the main highlights of the company's performance growth in 2013 are as follows: 1. "Journey to the West" and Feng Xiaogang's "Private customization" at the box office; 2 and 25.74 million palm fun technology stocks will be lifted on May 13, 2013, with a market capitalization of 860 million and a premium of 710 million.

< strong > Light Media: "Tai?" the myth is expected to continue < / strong >

the company's three major businesses of column production, film and TV series go hand in hand. It is estimated that column production and advertising revenue will grow by 32% in 2013, of which program production revenue will increase by 100%, film business box office by 14%, and TV series business revenue by 185%.

in "Tai?" after exceeding expectations at the box office, the market is worried about the continuity of the company's business, and even a decline in performance in 2013, but we believe that: 1. The film and television entertainment market will be in an upward cycle of industrial scale expansion and market concentration in the next five years. 2. The company ranks first in the field of program production, the second in the film industry, the first in the production of TV dramas, and the first in the comprehensive production strength of entertainment content in China. And the production scale in the three major business areas will grow rapidly in 2013. 3. "Tai?" the success is no accident. We believe that thanks to the expansion of the market size, the company's series strategy, the advantage of the distribution team and the increase in film projects, the company's overall film box office will continue to grow in 2013.