The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that Feitian Yundong (06610) continues to grow as a leading AR/VR content service provider and will fully benefit from industry sentiment, maintain the 23-25 adjusted net profit forecast of 3.05/397/497 million yuan, and maintain the purchase rating.

▍ Shen Wan Hongyuan's main views are as follows:

The XR industry's 24-year outlook can be more optimistic.

On the hardware side, Apple Vision Pro is on sale soon. The VR market broke the vicious cycle and entered a recovery period in 21-22, driven by hardware such as Quest 2, Pico Neo3, and applications such as the popular game “Half Life”; sales declined in 23 years. In the AR market, consumer-grade AR glasses for watching movies contributed to growth in 22-23. With the release of new key hardware products in '24, the XR industry is expected to enter a new round of development. Apple's MR device Vision Pro is expected to go on sale in early '24; configurations include M2 chips, 4K binocular, micro-OLED screens, pancake optical solutions, spatial video shooting, and bare-hand recognition, which have attracted much attention.

The content ecosystem on the app side, mobile phone side, and headset side opens up or stimulates the explosion of content. Last year, Pico launched a number of VR shows for celebrity concerts and sporting events. Currently, the supply of VR livestreaming/video is still dominated by PGC. As current technology upgrades continue to lower the shooting threshold, UGC may become a new content flashpoint in the future. For example, the “mixed reality recording function” introduced by Pico only requires a mobile phone other than a VR device to perform MR recording; the Apple iPhone 15Pro series supports shooting spatial video.

The current VR video software monetization model is still mainly in the first stage, that is, mainly internal purchases (membership, on-demand, rewards). With the abundance of VR content and the expansion of the number of users, forms of advertising and e-commerce may be added sequentially to form a diversified monetization model based on online content.

The company has solid fundamentals.

According to financial reports, the company's 23H1 achieved operating income of 599 million yuan, an increase of 27% over the previous year; net profit to mother was 116 million yuan, an increase of 41% over the previous year. ToB and ToC businesses continue to advance; B-side signed a strategic cooperation with Capital Airport Group Media Co., Ltd. in the second half of the year, and formally signed a cooperation agreement with Anji Ancient City National Archaeological Park, etc.

On the C-side, according to financial reports, the “Li Haoya” digital human account incubated and operated by the company has received nearly 3 million followers in the 3 months since Kuaishou was launched. Subsequent plans are to launch and operate several digital human accounts with 1 million followers one after another to form a digital human MCN matrix. In the future, it plans to explore monetization methods such as rewards and advertiser orders.

Recently, new scenes from XR+ concerts and live-action interactive games have been launched.

On December 19, it was announced that a cooperation agreement was signed with Lanting Digital. The two sides will jointly produce the XR version video of the SNH48GROUP New Generation Idol Group's “B50” Golden Song concert, as well as a variety show related to it; the online distribution will be carried out through Lanting Digital's distribution platform “Gonow”.

On December 20, it was announced that a formal cooperation was reached with Imagine Particles to distribute the VR version of “Inverted 21g”, the first large-scale sci-fi themed interactive video work in China; during the cooperation, the company will be responsible for the porting and development of the VR version of the interactive product, and will have the right to distribute the VR version of the film on a global channel.

The pressure to lift the ban was partially released, and executives promised to voluntarily ban sales+repurchases+increase their holdings, showing confidence.

The company announced on August 17 that Wang Lei, founder and CEO of the company, Li Yanhao, co-founder and executive director, and the relevant controlling entities have voluntarily promised not to sell the company's shares for six months from August 18, 2023.

An announcement was announced on November 14 to repurchase no more than HK$70 million of shares in the open market and no more than 54.3 million shares to be repurchased. According to Hong Kong Stock Exchange documents, Brainstorming Cafe Limited, an entity controlled by Wang Lei and Li Yanhao, increased its common stock holdings by 760,000 shares at an average price of HK$1.8289 per share on December 13.

Risk warning:

Competition in the industry intensified, and project progress fell short of expectations.