China Galaxy Securities: Optimistic about improving performance in the media sector, focusing on the three main lines of optional consumption, AI applications, and central state-owned enterprise reform

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that looking ahead to 2025, the performance of key media sectors will be stable and highly certain, and they are optimistic about a stable foundation for subsequent performance or a flexible variety with obvious improvements in peripheral factors. It is recommended to grasp the three main lines of procyclical optional consumption, AI applications, and central state-owned enterprise reform. 1) Optional consumption: It is recommended to focus on Tencent Holdings, which has stable fundamentals, and Bilibili, which has reversed losses for the first time and is expected to continue to improve; Fanmedia (002027.SZ), which is in a leading position in the industry for building media and cinema screen advertising; Bona Pictures (001330.SZ), which has benefited from the recovery of the film and television market; 2) State-owned enterprises in Shandong (300002.SZ); 2) State-owned enterprises in Shandong Publication (601019.SH); 3) AI Applications: Recommendations Focus on AI-enabled content-production related companies: Kunlun Wanwei (300418.SZ), Mango Supermedia (300413.SZ), etc.

The main views of China Galaxy Securities are as follows:

The annual film market comes to an end. Focus on subsequent supply inflection points. According to data from Lighthouse Professional Edition, the national box office in December was 2.35 billion yuan (including service fees), down 40.45% year on year and up 25.20% month on month. On the demand side, there were 11.507 million screenings in December, up 1.59% year on year, up 2.22% month on month; attendance rate was 4.3%, down 38.57% year on year, up 22.86% month on month; movie viewers were 59 million, down 39.18% year on year, up 22.92% month on month. The number of movies released in December was 58, and the number of movies decreased by 26.58% and 1.69%, respectively, compared with the same period last month. Currently, 28 key films are expected to be screened in January, so keep an eye on the scheduling and launch of subsequent key films.

The size of the game market reached a new high, and the growth rate of self-developed games going overseas was impressive: in 2024, the actual sales revenue of the domestic game market was 325.783 billion yuan, an increase of 7.53% over the previous year. The number of game users reached 674 million, an increase of 0.94% over the previous year. Looking at market segments, in 2024, the actual sales revenue of China's mobile game market was 238.217 billion yuan, an increase of 5.01% over the previous year. The actual sales revenue of the client-side game market was 67.981 billion yuan, an increase of 2.56% over the previous year. The growth in the client-side game market is mainly due to the steady performance of leading green games and the simultaneous release of many new mobile game products on the PC. In 2024, the actual sales revenue of games independently developed by China in overseas markets was US$18.557 billion, an increase of 13.39% over the previous year. Facing an international environment where the growth rate of the global game market is slowing down and competition is becoming increasingly fierce, domestic game companies have responded positively, and their performance is still outstanding.

Marketing market stage adjustments, segmentation of category trends: According to the “Overview of Advertising Market Sales Data from January to October 2024" published by CTR, the advertising market fell 1.9% year-on-year in October 2024. Judging from changes in advertising spending in the industry (category), from January to October 2024, the Cosmetics/Bathroom Supplies, Entertainment and Leisure, Post and Telecommunications, and Alcoholic Beverages industries all rose by more than 10% year-on-year, and are the main players in the advertising market.

Test the “send gifts” function of WeChat stores and continue to lay out the e-commerce industry chain. On December 18, the WeChat store officially launched a grayscale test for the “send a gift” function. With the exception of jewelry and education categories, products whose original price is not higher than 10,000 yuan will support the “gift delivery” function by default. We believe that WeChat stores are e-commerce ecosystems derived from the WeChat platform, and are backed by WeChat's huge social relationship chain. With the launch of the “send a gift” function, the overall process is similar to the “send a red envelope” function. Compared with previous purchases, delivery, or visiting gifts through traditional channels, WeChat stores have stronger social attributes and emotional value, and interaction is more immediate and convenient.

Risk warning: Risk of AI technology development falling short of expectations; risk of content regulation; risk of industry competition; risk of application of related technology falling short of expectations.