Downgrade TP from HK$13.17 to HK$7.80, maintain “Buy”. Based on our 2024 forecast for net profit and current market value, the Company's current valuation stands at a 10.0x P/E ratio. Our revised target price implies a 2024 P/E of 12.7x, a 2025 P/E of 8.9x, and a 2026 P/E of 7.4x.
　　Maoyan's (or the “Company”) financial report for 1H2024 demonstrates the Company’s relative stability in its film ticketing business, which saw 3% YoY growth, contrasting with a 6.9% decline in entertainment content services. Maoyan achieved revenue of RMB2.2 bn in 1H2024, representing a YoY decrease of 1.18%, while net profit sharply declined by 29.7% YoY to RMB285 mn. Despite a 9% drop in the overall film industry's box office revenue in China, primarily due to reduced cinema attendance, Maoyan's total revenue only decreased by 1.2%, highlighting the resilience of its core ticketing operations. However, the Company's overall costs have increased, impacting net profit, which saw a YoY decline of 29.7%. This rise in costs is primarily attributed to higher sales and marketing expenses, highlighting the necessity of maintaining market share and customer loyalty amid current industry pressures.
　　From a macro industry perspective, the Chinese film sector is currently undergoing an adjustment period, with expectations of further market contraction in the short term. While Maoyan has maintained stable ticketing revenue, its entertainment content services have been impacted by industry trends and increased sales costs, contributing to a decline in net profit. However, Maoyan remains actively involved in film distribution, demonstrating potential growth momentum. As a leading player in China's ticketing market, Maoyan is poised to benefit from the AIGC-driven industry growth trend, despite potential short-term valuation fluctuations.
　　Analyzing industrial data, Maoyan may continue to face profit pressures due to industry contraction. As of the end of August, the total number of screenings in Chinese cinemas increased by 12.2% YoY, but total admissions were only 77.8% of the same period last year, compared to 91.2% in 1H2024.
　　This indicates that Maoyan may face further challenges from industry contraction in 2H2024. Yet, the Company has shown high engagement in film releases, with an increase in distributed and produced films. Looking ahead, Maoyan has a robust content pipeline, with key releases scheduled for the National Day and New Year holidays, maintaining strong market participation.
　　Due to revised expectations for the market size of China's film industry, we lower our revenue forecasts for Maoyan by 19.6% and 23.3% for 2024 and 2025, respectively. Adjustments in cost and sales expense expectations also lead to a downward revision of net profit margin forecasts. Consequently, we adjust our EPS forecasts for 2024-2025 down by 24.6% and 23.7%, expecting RMB0.637, RMB0.822, and RMB0.977 for 2024-2026, respectively.