On March 27, Ning Meng Film and Television (09857) announced the 2023 results announcement. Total revenue for the year was 1.22 billion yuan, up 28.4% year on year, and copyright drama revenue was 1.17 billion yuan, up 24.3% year on year. The group continued to fully implement cost reduction and efficiency throughout the year. The cost of copyright drama content, sales and distribution expenses, and administrative expenses all achieved a year-on-year decline. Adjusted net profit of 227 million yuan, an increase of 60.4% year on year, and gross margin remained high, rising to 39.4%.

Ling Meng Film and Television has the characteristics of a good business. Operating cash flow maintained a net inflow. The net cash flow from operating activities in 2023 was 354 million yuan. At the same time, the inventory turnover rate and accounts receivable turnover ratio declined significantly, and were significantly lower than those of its peers.

For Ning Meng in 2023, unlike before, long dramas are still Ning Meng's excellent foundation. Based on long-term principles, Ning Meng has increased IP copyright procurement, carried out organizational changes, upgraded seed plans to attract more outstanding talents, and plans to expand production capacity to 1,000 episodes per year. At the same time, it is also innovating business development, and skits have grown into a new force. Revenue contributed more than 12 times over the same period in 2023. Together with overseas business, etc., it forms the second growth curve, and is gradually being seen and recognized.

Dramatic incremental growth, increased revenue, and further expansion of production capacity

Through financial data, Zhitong Finance found that high-quality content is the backbone of Ning Meng's high competitiveness.

In 2023, the Chinese opera market developed steadily, and many high-quality works that received traffic and word of mouth emerged, which were highly recognized by the audience. As a leading drama brand, Ning Meng has been upgraded in multiple dimensions such as innovation, diversity, and quality, and has achieved steady and positive development with realistic works.

According to the Guangfa Securities Research Report, Ning Meng is a scarce domestic content company with stable production of leading copyrighted dramas. Popular dramas account for 70%, Douban accounts for 40% or more, and original screenplays account for 50%. Every year from 2017 to 2023, at least one copyrighted drama ranked in the top 30 on the Internet. Therefore, the revenue and profit margin of individual episodes of Ning Meng's copyrighted dramas are at the leading level in the industry, achieving 100% pre-sale.

According to statistics, Ning Meng successfully produced and broadcast 3 boutique copyrighted dramas in 2023. The three works, “Just Love,” “Asking Me,” and “One Mind Guanshan,” ran throughout the year, covering many tracks such as urban emotions, medical treatment, costume, etc., with a total of 116 episodes, 11 more episodes than in 2022. They all received high ratings, high popularity on video platforms, and high ratings on Douban. The quality reached new heights and became the audience's social currency. In 2023, the proportion of Ning Meng Douban series with a score of 8 or above accounted for 67%. Over the years, it achieved a 100% quality rate, which is far higher than that of its peers.

Since the development of the film and television industry, drama competition has long been upgraded to a full-chain competition for user insight, development and drama creation, production control, distribution and operation, and commercialization. Ning Meng's performance in terms of work categories, innovative breakthroughs, and creative standards has played an important role in boosting the industry and market, and continues to improve drama creation standards and innovation space.

So, what is the key for Ning Meng to maintain a high level of competitiveness? It can be summarized as follows: understanding changes in the market and users and taking half a step forward, production capacity for systematic sustainability, and diversified innovation without shortcuts.

“Super content connects to the new public” is Ning Meng's content strategy. We disassemble “super content,” “connect,” and “new public” separately to understand this strategy.

In response to the needs of market users and changes in public sentiment, Ning Meng continues to iterate on the content of the series, using characters as the creative source, searching for fresh and extreme characters and their relationships, and exploring deeper expressions. The group portraits of characters with distinct personalities, simple plot progression, imaginative Oriental aesthetics, and expressions of the country's values in “One Mind Guan Shan” are all quite suited to the current aesthetic and mental state of the audience, and have garnered much discussion and praise.

The 2024 16-part list is an expression of its content strategy. Behind this is the mission, vision, and values, to the maturity of the organizational mind, to a series of clear tactics to launch a high-quality series.

Under the premise of guaranteeing 100% quality, Ning Meng once said that in the next three years, it will advance from producing 200 episodes per year to broadcasting 200 episodes per year. Judging from its previously released 2024 film list, it expanded its categories to 5 major tracks and 20 categories, ensuring quality while continuing to innovate and accelerate the expansion of production capacity. As can be seen, in addition to the 2024 broadcast list, Ning Meng is putting energy into production to gradually and steadily increase production capacity.

It is worth noting that Ning Meng is a leading company with the ability to develop its own original screenplay, which is scarce in China, and has put a lot of effort into original works over the years. Original is relatively expensive in terms of time and labor costs, but it has strong development space and commercial transformation capabilities. From a long-term perspective, self-developed original ability is an ability that a content company must have and depends on to survive. The moat for quality content will definitely be strengthened and deepened. As experience settles and original works form a certain scale, the content cost structure will continue to be optimized to a certain extent. This is certainly a difficult but correct path for film and television content companies. In addition, original works have increased the profit margin of domestic distribution through cost reduction and efficiency, and through the expansion of overseas distribution and overseas remake production, they have achieved a wider derivative radius for copyrighted dramas, and have also enhanced the derivative capabilities, freedom, and space surrounding original IP. All of these will directly drive revenue and profit growth.

Based on the original route, Ning Meng also purchased a large number of high-quality external IPs in 2023. IP potential drives production capacity growth. The company plans to launch 16 long drama projects in 2024. The systematic content development process and rich copyright project reserves have laid a solid foundation for the company to increase production capacity in the future.

These will all further stabilize Ning Meng's long drama base, provide a foundation for diversified income, and enhance long-term value.

Short dramas welcomed explosive growth and became the leading double leader in long and short dramas

Ning Meng's role as a leading company is not only due to her production ability and innovation ability, but also her forward-looking insight into emerging markets and rapid entry into the market, and has ushered in explosive growth, becoming a scarce leader in long dramas and short dramas in the industry. Ning Meng's expansion space and diversified development of the skit track layout and production capacity are all enhancing Ning Meng's development potential and potential.

According to Ai Media Consulting, the size of China's short drama market in 2023 is about 37.4 billion yuan, close to 70% of the film market. The market size is expected to exceed 100 billion yuan in 2027. According to data from Yien, in 2023, more than 1,400 short dramas were released on the market. After rapid growth, the survival rule of survival of the fittest in the skit market in 2023 gradually became prominent, and the tightening of regulations is also forcing the industry to produce better content. This trend of refinement and specialization will continue in 2024.

For Ning Meng, this is certainly a major benefit. When Ning Meng initially set up the skit business, she decided on a boutique route and carried out a variety of content layouts, such as women's topics, unlimited flow, and costume. Through content innovation and superior quality, Ning Meng achieved breakthroughs and continued to seek change, and strived to take the lead in the new skit circuit.

Ning Meng has a clear competitive advantage on the skit track. According to Reyun data, the average ROI of the short drama industry is around 1.1, and homogenized content depends on streaming. Ning Meng has strong production capabilities and industry resources, forming a differentiated competitive advantage on the content side; furthermore, Ning Meng has strong investment promotion capabilities in collaboration with leading dramas; in the orderly market competition for compliance review of skit content, Ning Meng's superior ability in creative development and content production will be further highlighted.

According to the results announcement, in 2023, Ning Meng achieved revenue of 32.23 million yuan in skits, an increase of more than 12 times over the previous year, contributing to the Group's revenue growth. Currently, 8 short dramas, including the second season of the female-themed short drama “29,” “29,” “Save My Family”, and “Behind the Traffic” have been broadcast on the Douyin platform. The total number of broadcasts has exceeded 2.4 billion, continuously occupying the top 1 of the Douyin skit list, and has built a multi-dimensional commercialization path for short dramas, covering platform customization, traffic division, C-side payment, and business cooperation.

According to statistics, in 2023, Ning Meng launched a total of 20 short dramas, and accelerated expansion, reserves and developed nearly 100 short dramas in the multi-dimensional category, which will be launched one after another.

On the cusp of the rapid growth in the global skit market, Ning Meng has also accelerated the production and distribution of overseas skits, using overseas localized filming resources and productivity and value-added services brought by new AI technology to apply innovative technologies such as AI to production processes such as script development and character selection. Currently, Ning Meng has released 2 short dramas in overseas markets, and plans to launch more than 20 in 2024.

With the support of high-quality content in short and long dramas, Ning Meng has achieved global layout and growth. In 2023, its overseas distribution revenue was 38.81 million yuan, an increase of 89.1% over the previous year, and the distribution price reached the leading level in the industry. Ling Meng's overseas distribution closely follows the diversification trend of the market, targeting not only the European and American markets, but also the world, including Russian-speaking regions, Central Asia, West Asia, the Middle East, South America, etc., and broadcast simultaneously on mainstream platforms such as Netflix, Disney+, YouTube, and Viu. According to statistics, Ning Meng has distributed nearly 20,000 hours of Chinese-language content to more than 30 platforms, covering more than 190 countries and regions around the world.

It is expected to cross the cycle and usher in continued growth

Under the rapid and steady development trend of short and long dramas, Ning Meng remains optimistic about its future growth.

Its increased investment in copyrighted dramas, skits, and overseas markets shows firm confidence in the industry's prospects. Ning Meng continues to produce popular and innovative works, proving her ability to create systematic content over the years. On the basis of attracting and cultivating outstanding talents, with the support of leading technology and creative tools, Ning Meng has the certainty of continuing to export hits.

2024 is a big year of production. Ning Meng has accumulated sufficient ammunition. The overall momentum is strong. Coupled with the strong development of new businesses such as overseas business and short dramas, it will enhance Ning Meng's future development potential and space, and promote both revenue and profit growth.

In addition to increasing efficiency, look at cost reduction. In recent years, Ning Meng has continued to carry out comprehensive budget management to further reduce costs and increase efficiency. In addition to lower content costs, sales and distribution expenses fell 11.9% and administrative expenses fell 26.6% in 2023.

Taken together, Ning Meng is a scarce domestic content company with continuous and stable output, systematic content development and rich project reserves, rapid growth in new short drama productions and revenue, stable domestic and foreign distribution, large room for overseas business growth, and a leading position on the long and short drama circuit. It has laid a solid foundation for a steady increase in production capacity in the future. GF Securities once gave the company a PE valuation of 10 times in 2024. The corresponding company's reasonable value was HK$9.78 per share, giving it a “buy” rating.

Based on long-term principles, the film and television industry with Ning Meng as the leading brand will go through the cycle, further continue the good development trend, and boost the confidence of the industry and investors.