中国媒体行业-知识产权：有就好但不是灵丹妙药-2021.7.25-103正式版

MContentsKeyChartsInvestmentThesis11OrderofPreferenceEntertainmentIndustryIsEnteringaContent-DrivenEra,BenefitingStrongProducersValueofIPinVariousEntertainmentSegmentsChinaLiterature-PositiveShort-termOutlookbutLong-termRemainsUncertainChinaLiterature-What'sinthePrice?MangoExcellent-RenownedVarietyShowIPBuilderwithMoreAmbitiousPlaninMindEnlight-ProminentAnimationFilmPlayerEnlight-EarningsEstimateRevisionsEnlight-ValuationandPriceTargetPerfectWorld-DualGrowthEnginesAwaittobeProven;InitiateatEWInvestmentPositivesandConcernsPerfectWorld-DualGrowthEngines,ButyetbeProvenPerfectWorld-Long-termDriversAhead

FoundationPerfectWorld-EarningsForecastsPerfectWorld-ValuationandPriceTargetPerfectWorld-CompanyOverview49BusinessSegmentsSongchengPerformance-GrowingOfflineShowIPOwnerinChina;InitiateatEWInvestmentPositivesandConcernsSongcheng-StrongMarketPositionBuiltUponRenownedIPSongcheng-EarningsForecastsSongcheng-ValuationandPriceTargetSongcheng-CompanyOverviewAlphaGroup-Re-shiftingitsFocustotheKidsMarketAlpha-EarningsEstimateRevisionsValuationandPriceTargetiQIYI-Long-TermGrowthDriverButAwaitVisibilityonExecutionCiwen-LongerRecoveryPathThanExpected;MovetoUWMorganStanleyResearch 3M

FoundationIP-GoodtoHavebutNotaPanaceaIPcapability,i.e.,havinganestablishedIPlibraryandproficiencyinfosteringIP,helpspromotelong-lastingvalueforcontentpro-ducers:WenotethatarichIPinventoryhelpstoensureearningsvisi-bility,mitigatehit-or-missrisk,andfacilitateIPowners'expansionintootherentertainmentmarkets.However,despiteIPenhance-ment,productioncapabilityisstilladecisivefactorincultivatingproductsuccess.IndustryViewNevertheless,IP'sinfluencevariesacrossGreaterChinadifferententertainmentsegments:AmongMedia|Asiaentertainmentsegments,dramaismostPacificaffectedbyIP,asstorylinesplayanessentialIn-Linerole.Inothersegments,playershaveadaptedIPtoaugmenttheirproducts'influ-enceandmonetizetheIP.Wealsoobservethatplayerswithstrongproduction/operationscanestablishtheirownIPbyfosteringhigh-qualityproducts.China'sentertainmentindustryisenteringacontent-driveneraversuspreviouslybeingdrivenbypenetrationincrease...Asindustrygrowthslowsamidhighpenetration,astructuralshiftisoccurringinwhichhigh-qualitycontentisgainingshare.Hence,webelievecontentqualityisacoredriverforproducers,andproductioncapabilityisthekey.andmanyplayersnowfacehigherhit-or-missriskinthisnewera.Duringthepreviouseraofhighindustrygrowth,playersfacefewerchallengesinmakingaprofit,despitetheirproductionquality.However,astheindustryentersa"contentisking"era,weseemanyplayers'profitsdecliningandsharepricesdropping.Weexpectstrongproducerswithalongproductlifecycletobemarketgainersandresumeprofitgrowth.Weevaluateourcoveragebasedonafive-metricframework:(1)TAMoutlook:weassessthesize,growthprospects,andcompetitionoftheTAMs.(2)EstablishedIPinventory:wepreferplayerswitharichIPsupply,especiallyself-fosteredIP.(3)Productioncapability:

Exhibit1: SummaryofRatingsandPriceTargetsCompanyTickerRatingPriceTargetNewOldNewOldTencent0700.HKOWOWHKD720.00720.00NetEaseNTES.OOWOWUSD150.00150.00BilibiliBILI.OOWOWUSD140.00140.00MangoExcellentMedia300413.SZOWOWRMB70.7070.70ChinaLiterature0772.HKEWEWHKD80.0060.00EnlightMedia300251.SZEWEWRMB10.8010.70PerfectWorld002624.SZEW-RMB19.10SongchengPerformance300144.SZEW-RMB16.20HuaceFilmandTV300133.SZEWEWRMB6.226.22AlphaGroup002292.SZEWEWRMB5.206.40HuayiBrothers300027.SZEWEWRMB3.333.33iQIYIIQ.OUWUWUSD14.0014.00CiwenMedia002343.SZUWEWRMB4.245.42Source:MorganStanleyResearchgivenourconvictionthatproductionexpertiseisessential,webelievestrongproducershaveagreaterchanceofgarneringmarketsharegains.(4)Cashcycle:healthycashflowiscrucialgiventhenatureofcontentbusiness.(5)Hit-or-missrisk:playerswithahighhitratioaremoreattractivetous.TencentandNetEaseareourtoptwopicksgiventheirwell-roundedstrengths.WereiterateourOWsonBilibiliandMango.WeremainEWonChinaLitaswebelievethesharepricehaspricedinsignificantimprovementintheshorttermbutthelong-termoutlookremainsunclear.WeinitiateontwocandidateswithstrongproductioncapabilityandestablishedIP,lookingforanopportunitytoprovetheirstory.WeinitiateonPerfectWorldatEW-weciteapromisingoutlookgivenitssecondgrowthengineahead,althoughweremainpatientasweawaittheperformanceofnewtitles.WeinitiateonSongchengPerformanceatEW-welikeitswell-builtbusinessmodel,butweremainconservativefornowduetolingeringCOVID-19concernsanditsyet-to-be-provenapproachintheurbanentertainmentmarket.Riskstoourviewincludecontentcopyrightregulations,hit-or-missrisk,themacroeconomy,andapotentialCOVID-19resurgence.RelatedReport:ChinaLiterature:SizingtheIPMonetizationPotential(Nov19,2020)4MKeyCharts

FoundationExhibit2: Five-metricframework:EvaluatingourMediacoverageTAMOutlookEstablishedIPProductionCashCycleHit-or-missValuationInventoryCapabilityRiskTencentJJJJJJNetEaseJJJJJJBilibiliJJJLKLKJJLKKMangoExcellentChinaLiteratureJJKJJKEnlightMediaKJJLLKPerfectWorldJJJJKKJJJLKKSongchengAlphaGroupKJKLLLiQIYIKKJLLKSource:MorganStanleyResearch.Note:Basedonourrelativeassessmentofthequalitieswithinourcoverage.Exhibit3: Chinapan-entertainmentindustrysizeChinaPan-entertainmentIndustrySize(byretailvalue,Rmbbn)2,000CAGR2015-192019-24e1,7811,800Total14.8%14.2%DigitalEntertainment16.3%15.0%1,5851,600PhysicalMerchandise22.1%23.3%1,392OfflineActivity10.3%10.0%1,4001,2051,2001,00091796580080071761552802015 2016 2017 2018 2019 2020e 2021e 2022e 2023e 2024eSource:ChinaGameIndustryGovernanceCommittee,InternetAccessServiceAssociationofChina,ChinaFilmAdministration,Frost&Sullivan.e=Frost&Sullivanesti-mates.MorganStanleyResearch 5M

FoundationExhibit4:IPvaluechainEntryAsof2019IndustryMainPlayersMarketSizeNo.UsersCompetitionProductionBudgetCashCycleBarrier(Rmbbn)(mn)(Rmbmn)(months)OnlineLiterature20>400ChinaLit>50%user<1<6marketshareUpstreamLedbyKuaikan,Bilibili,IP/ContentOnlineComics3<1<6andTencentSource~400Animation16LedbyBilibiliand206-12TencentVarietyShow45Onlineplatform:770CR5~50%>100<8OTTTV:330familiesDrama86IPTV:300familiesCR5~15%>1006-12MidstreamIPAugmentationFilm64>1,700CR5~40%>10015-24admissionsGame231640CR5~70%>50PC:12-36Mobile:6-18Offline245>800Themepark:CR5>60%Themepark:>200Themepark:>12EntertainmentOthersfragmentedDownstreamIPMonetizationPhysicalMerchandiseSource:MorganStanleyResearchExhibit5:Chinadrama:NumberofnewreleaseshasgraduallydeclinedononlineplatformsNo.ofnewdramareleaseononlinestreamingplatforms600507489475500438400300207205200100020172018201920201H20201H2021All-channelInternet-onlySource:Enlightent,MorganStanleyResearch

Exhibit6: ChinagamemarketsizeChinagamemarketsize(Rmbbn)40045%35040%30035%25030%25%20020%15015%10010%505%-0%201020112012201320142015201620172018201920202021E2022EPCgameMobilegameOthers%YoYSource:GamePublishersAssociationPublicationsCommittee(GPC)ofChinaAudio-videoandDigitalPublishingAssociation,CNG,IDC,MorganStanleyResearch(E)estimate.Exhibit7: ChinafilmmarketgrowthCHINABOXOFFICE1202,5001002,000801,500601,0004020500-2011201220132014201520162017201820192020-20102021E2022E2031EB(R)A()(RHS)Source:MaoyanPro,SARFTMorganStanleyResearch(E)estimate

Exhibit8: ChinaofflineentertainmentindustryChinaofflineentertainment(Rmbbn)30030%25025%20020%15015%10010%505%-0%20152016201720182019ThemeparkOfflineshowOfflinegame%YoY(RHS)Source:ChinaCulture&EntertainmentIndustryAssociation,ChinaAssociationofPerformingArts,Frost&Sullivan,MorganStanleyResearch6MInvestmentThesis

FoundationInthisreport,wemapthevalueofIPacrossdifferententertainmentsegments–game,film,varietyshow,offlineanddrama.FromtheperspectiveofIPandsegmentdynamics,wediscussourviewsonourMediacoverage.Overall,webelieveIPcanempowerindustryplayers,asIPcanpro-long the product lifecycle and mitigate hit-or-miss risk.Nevertheless,IP'sroleandinfluencevarysignificantlyamongdif-ferententertainmentformats.IP'sinfluenceismostprominentinthedramasegment,asagoodstorylineiskeytodramas.Infilm,gameandofflineentertainment,playersareactingbothasIPestablisherandIPadaptor/monetizer,whilevarietyshowproducersactmorelikeIPestablisher.Forproducers,ourindustrypreferenceorder:Game>film>varietyshow>offline>drama.ForChinaLit,it'struethat,asaleadingIPowner,itholdsasolidposi-tion,withpotentialcooperationwithTencent,itsmajorshareholderwhichpossessesstrongproductionexpertiseinvariousentertain-mentformats.However,wethinkitslong-termoutlookmaybelessoptimisticthanonemightinitiallybelievebecauseChinaLithastogarnerproductionexpertiseinthedifferententertainmentseg-ments.Ontheotherhand,ChinaLithasthepotentialtocooperatewithvariouspartnersacrosstheentireIPvaluechainandexpandbeyonddrama,thoughsuchaprocessmightnotbesmoothgivencompetitionfromcontentproducersacrosstheentirevaluechain.

Weevaluateourcoveragebasedonfivekeymetrics:TAMoutlook:Weassessthesize,growthprospects,andcom-petitionlevelofthemarketsinwhichplayersarepositioned.EstablishedIPinventory:Welikeplayerswithrichestab-lishedIPsupply,asIPhelpsimproveearningsvisibilityandenhanceaproduct'sreceivedattention.Moreover,weespe-ciallylikeplayerswhohavesuccessfullyself-fosteredtheirownIP,whichcouldindicatestrongproductionexpertise.Productioncapability:Readingacrossdifferententertain-mentsegments,wenotethatproductionknow-howcastsasignificantinfluenceoverproductsuccess,withorwithoutIPenhancement.Thisisespeciallytrueinhigh-user-engagementformats,suchasgaming.Cashcycle:Forcontentproducers,manyfacelongproduc-tion/distributioncycles,whichstressestheircashflows.Thus,weincorporatecashcycleintoourframeworkasakeyfinan-cialhealthindicator.Hit-or-missrisk:Contentproducers,overall,tendtohavelowerearningsvisibilitybecauseofthesignificantup/down-sidepotentialfromeachproductrelease.Producerswithlowerhit-or-missriskaremoreattractivetous.MorganStanleyResearch 7M

FoundationExhibit9: Five-metricframework:EvaluatingourmediacoverageTAMOutlookEstablishedIPInventoryProductionCapabilityCashCycleHit-or-missRiskValuationJJJJJJBestpositionedtocaptureChinapan-entertainmentmarketTencentopportunities,withgameleadershipsecuredandIPvaluetounlockviacontentinvestmentsandcomprehensivechannels.

GameIP-LeagueofLegends,HonourofKingsetc.AlsofosteringTencentVideoandChinaLiteratureestablishedIPs.

Provengamedevelopmenttrackrecordwithglobalappeal.Footprintinawidearrayofentertainmentformatsalsobodewellforcross-formatIPsynergies.

GameR&DandflagshipIPcyclecantakeyears.Butlessofaconcerngiventhecompany'sstrongfundamentals.

Soliddistributionchannelsandsocialnetworkfeaturestoensurelesshit-or-missriskvs.peers.

At25-30x2022xEPS,inthelowendofhistoricaltradingband.J J J J J JNetEasebodeswelltocapturetheNetEaselong-termtailwindofmobilegamesglobalizationgivenitsstrongupcomingpipeline.

ApartfromMMORPG(FWJ,WJ,NewGhost,ChuLiuxiang,Justice),NetEasealsohasflagshiptitles/IPsinothergenreSLG(Invincible),cardcollection(Onmyoji),battleroyale(KnivesOut)etc.

Inthelasttwodecades,NetEaseisfocusedonorganicgrowthandhasself-developedmanylong-lastingIPlikeWestwardJourneyandOnmyoji,thatcontinuestomakerecord/stablegrossingyearafteryear.

NotaconcerngivenitsstableFCFyieldof5%and>30%gpminhistory;plus25-30%dividendpayout.

Mildforindustry.LowermissratioforNetEasegivenitsexceptionaltrackrecord.

At22x2022P/E(18-19xforgames),cheaperthanEuropean/USpeersat21x-31x.Itsstrongglobalgamestitlelineupinthenext6monthscandrivere-ratingpotentially.J J J L K LBilibiliSizableTAMgivenitsfivepillarsofrevenuestreamsacrossvariousentertainmentmarkets.

RichlicensedIPsfromJapanandChinaandself-producedIPs,intheformofanime,occupationallygeneratedvideo(OGV),varietyshows,andmobilegamesetc.

DemonstratedstrongOGVproductiontrackrecord;manywith+200mnviewsinfirstyear.

Expectedtoremainlossmakinguntil2024(Mse),duetocontentandmarketinginvestmentstomaintainitsPUGVecosystembarrierandusergrowth.

MildinvideogivenitsstrongOGVtrackrecord;butnotinmobilegamesyet.

ThemostexpensiveinourChinainternetcoverageat10x2022eP/S.MangoExcellentMedia

KJJLKK10+blockbustervarietyshowIPs.Mildforindustry.At40xto2021eEPS,0.5stdevWeexpectstagnantgrowthinBothMangoanditsparentcoHBS6monthsto2years,dependingonLowerforMangothankstobelowitsaverage50xandbelowAlsoattemptingtobuildupdramausersandtimespent.IP.arestrongproducers.contentformatsestablishedIPandstrongtheimpliedfairvalue(Rmb60)fromproduction.privateplacementoffer.ChinaLiterature

JJKJJKThroughlicensingitsIP,ChinaLitWell-establishedpaidreadingChinaLitbuiltdramaproductionDependsoncontentformat.NotamajorconcerngivenChinaplatformsconsistentlyincubatecapabilitythroughacquisitionofBesidesNCM,ChinaLitmostlydoAt>50x2021enon-GAAPP/E,wecangetaccesstovariousLit'sdiversifiedexposuretovariousentertainmentsectors.originalcontentandfosteronlineNCMbutrelieson3rdpartyforco-investmentorIPlicensing,whichcontentgenres.thinkupsideismostlypricedin.literatureIPs.otherformats.arerelativelyassetlight.K J J L L KEnlightMediaChinaboxofficetogrowat7.2%CAGRin2022-25e.

FamousanimationfilmIP-NeZha,JiangZiya,MonkeyKingandetc.

Strong,especiallyinanimationfilm,1-2venbytrackrecord.

HighforductionandIP.J J J J K KWeexpectChinagamemarkettoPerfectWorldmaintainitsfastgrowthat11%CAGRin2021-23e(vs15%in2015-20).

RichIPinventoryofbothself-GameR&Dcyclecanbeyearslong.Leadingin-houseproductionButnotaconcerngiventhefosteredandadapted/pany'ssustainedgrossingsIPsindifferentthemes.fromexistingtitles.Mediumforindustry.LessofaconcernforPWgivenitsIPinfluence,productioncapabilityand"longlifecycle"strategy.

At22xto2021eEPS,slightlyaboveindustrymediananditshistoricalavg.SongchengPerformance

JJJLKKAmpleupsidedrivenbysupplyStrongandrareofflineIP.Strongcontentcreation&LargeinitialinvestmentoutlaywithRelativelylowfortourismmarketAt28xto2022eEPS,inlinewithitsincrease;Covid-19recoveryonoperationknow-how.longconstructionperiod.expansion.historicaltradingavgandourtargettrack.Highinurbanmarket.PER.K J K L L LAlphaGroupLowgrowthinfilm.Popularself-builtandpurchasedRelativelyweakincontentLongforfilmandthemepark.cartoonIPs,suchasPleasantGoatproduction.Butgreaterupsideinthemepark.Shorterforcartoon.andBigBigWolf.Strongattoymanufacturing.HighforindustryandAlphagivensupport.K K J L L KStructuralchallengesinlong-formiQIYI videospaceisnotaquickfix.Weexpectstagnantgrowthinusersandtimespent.

RelativelyweakerIPinventoriesgivenlong-formvideotrafficnatureandlessin-housecontentinthepast.

TrackrecordofincubatingvarietyshowIPs.ThematicshortdramaandChineseoriginalIPinventoriesareencouragingbutwouldtaketimetorampup.

6monthsto2years,dependingoncontentformats;morechallengingvs.peersgivenplateauedsubsbaseandtoplinegrowth.

Mildforindustry.RelativelyhighforiQIYIbasedonitstrackrecordthusfar.

At2x2021eP/S,inthemid-to-lowerendofhistoricalbandof1.8-4.5xsince2020.Source:MorganStanleyResearch8MOurcompanypreferenceorder:Tencent>NetEase>Bilibili>Mango>ChinaLit>Enlight>PerfectWorld>Songcheng>Huace>Alpha>Huayi>iQIYI>CiwenTencent-BestpositionedtocaptureChina’span-entertainmentmarketopportunities:Onthebackofitsgameleadership,contentecosystemandcomprehensivechannels,bodingwellforTencenttofosterIPs.WealsolikeTencent’sproventrackrecordingameproduc-tion,whichappearstobethemosteffectivemonetizationfunnelacrosspan-entertainmentindustryinChina.Tencent’sestablishedgame,videoandliteratureIPscanbelowhangingfruitstoadaptandunlockvalue;Tencent’sfootprintinawidearrayofentertainmentformatsalsoprovidespotentialsynergies,withsoliddistributionchannelsandsocialnetworkfeaturestoensurelesshit-or-missriskvs.peers.WeviewTencent’sinitiativeonPlatformandContentGroup(PCG)ReorginApril2021shouldhelpitutilizegroupresourcesandsolidifyitscontentleadershipinthecontentera.Thereorganizationhigh-lightsthestrategicimportanceofcontentandempowersTencenttoseekgroupsynergiesandstepupcompetitionwithemergingcontentplatforms.ReiterateOW.NetEase-Stronggameproducerwithbullishtitlelineupinthenextsixmonths:Asevidencedbyitsexceptionaltrackrecord,NetEasehasdevelopedmanyself-developedgametitles/IPs,suchasWestwardJourneyandOnmyoji,withlong-lastinglifecycles.OnthebackofitsstrengthinMMORPG,itisdiversifyingintomanyothergenres,withflagshiptitlesinSLG(Invicible),cardcollection(Onmyoji),battleroyal(KnivesOut)andsoon.Wearealsobullishonitsoverseasventure.Weexpectthatitsnext-six-monthlineup,thestrongestinthreeyears,willdriveitsexpansionbeyondChinaandJapan,bodingwellamidthelong-termstructuraltailwindfromtheglobalizationofmobilegames.Atthecurrentvaluationof22xtoour2022eEPS(18-19xforgames),versusEuropean/USpeersat21-31x,weciterichvaluation.ReiterateOW.Bilibili-Well-builtcontent/IPecosystemwithlargestGenZuserandmindshareinChina:OnthebackofitscommunitywiththelargestuserandmindshareofChinaGenZ,BilibilihasaccumulatedmanylicensedIPsfromJapanandChinaandself-producedIPsintheformofanime,OGV(occupationallygeneratevideo),varietyshows,mobilegames,andsoon.TheseIPsarefurtherbeingusedinitseco-systembycontentcreatorstoproducemorePUGV(professionalusergeneratedvideo).ThoughBilibiliisthemostexpensivestockinourChinainternetcoverageat10xour2022esales,weremainbullish

Foundationonits>40%revenueCAGRin2021-23eanditshighlikelihoodofarevenuebeat-and-raisecycletocontinuedrivenbyadvertising.ReiterateOW.Mango-ProductionexpertiseandrichestablishedIPinventoryinvarietyshow:OnthebackofitsestablishedvarietyshowIP,Mangohasbeenconsistentlydeliveringblockbustershows(bothN-seriesandnewones)leveragingitsstrongproduction.Thevarietyshowssupportthegrowthofitsadvertisingrevenue(higheradARPUthaniQIYI)andsubscriptionrevenue.Mangohasalsoleverageditsestab-lishedIPstounlocktheofflineentertainmentmarket.Thecurrentvaluationof40xtoour2021eEPSisbelowourtargetPERof50xanditshistoricaltradingaverage(50x)sincerestructuringin2018.Thecurrentpriceisalsoslightlybelowthefairvalueimpliedbytheongoingprivateplacementofferprice(Rmb60).ReiterateOW.ChinaLiterature-Significantimprovementinshortterm,butunclearlong-termoutlook:Webelievethatthemarketacknowl-edgesChinaLit'sdominantpositionasanIPownerandincubator–but,longerterm,wehaveuncertaintyastowhethersuchIPcanbeeffectivelymonetized.Althoughwebelievetherewillbesignificantnear-termprofitimprovement,giventheaccumulationofanabun-dantcontentpipelineafterthechangetoTencentmanagementinApril2020,wenonethelesslacklonger-termvisibility,givencompe-titionfromvariousproducersacrosstheIPvaluechain.WethinkChinaLit'sYTDsharepriceoutperformancehasalreadypricedinmostoftheupsidepotential;weestimatethatitsnon-NCMIPbusi-nessistradingat50x2021eP/E,atthehighendamongA-sharepeers.RemainEW.Enlight-Stronganimationfilmproduceramidtherisingmarket:Inourview,EnlightiswellpositionedtocaptureanimationIPfilmgrowthupsidethankstoitsstrongproductioncapabilityandgoodtrackrecord.Nonetheless,webelievemostofthegrowthstoryhasbeenpricedinatthecurrentvaluationof~40xtoour2021eEPS.RemainEW.PerfectWorld-Top-tierMMORPGproducer;approachtoexpandintoinnovativetitlesawaitstobeproven:WeespeciallylikePerfectWorld'sstrongproductioncapabilityandmarketpositioninmassivelymultiplayeronlinerole-playinggames(MMORPG).Welikeitsdualgrowthengines–classictitlesplusanewwaveofinnova-tivetitles–buttheperformanceofnewtitleswillneedtobemoni-tored.Currentvaluationof22xPERisinlinewithourtarget.InitiateatEW;PTRmb19.10.MorganStanleyResearch 9MSongchengPerformance-Well-builtbusinessmodelthankstoestablishedIP,butCOVID-19concernlingers:WelikeSongcheng'sestablishedIPandbusinessmodelinofflineentertainment.Theurbanentertainmentsubsegment,whichopensupthegrowthupsidepotentialfromSongcheng'scurrentbusinessmodel,couldprovideare-ratingopportunity.Nevertheless,weciteCOVID-19remainsakeyconcernforthecompany.Currentvaluationof28xPERisinlinewithourtarget.InitiateatEW;PTRmb16.20.AlphaGroup-StrongestablishedkidIP,butunderpressurefromrisingcosts:AfteritsexperienceintheadultIPmarketduring2018-2019,AlphaisnowtryingtogetbackontrackleveragingitsIPadvan-tagesinthekidsmarket.WeupgradedAlphafromUWtoEWinJanuary2021.However,Alphaseesrisingcostpressurefromrawmaterialsandoverseasshippingin2Q21mainlyduetotheoutbreakofCovid-19.Onconcernsaboutrisingcosts,wecutourgrossmarginforecastby5.3/7.4pptsin2021/22.Despitethepressurefromrisingrawmaterialspricesandhighercostsinoverseasshipping,AlphaisdoingwellinitsnewseriesofestablishedIPanditsapproachtothemeparks.RemainEW.Huace-Strongproductioncapabilitybutlimitedchancetoestab-lishitsownIP.HuaceisoneofthetopdramaproducersinChina,asevidencedbyitstrackrecord.However,webelievethat,fortheoverallindustry,itischallengingforadramaproducertoestablishitsownIP,thusweseehit-or-missriskinthelongterm.Lookingforward,webelieveitwillremaindifficulttodoso,especiallyamidtheindustrytrendthatlong-videoplatformsareputtingmoreeffortsintotheirself-produceddramacontent.RemainEW.

FoundationHuayi-Strongproductioncapabilitybuthighhit-or-missrisk.HuayiisoneoftheleadingfilmproducersinChina,withmanyblock-bustertitles.However,weremainconcernedaboutthehighhit-or-missriskitscorebusinessfaces,givenitsconsecutivelossessince2018(>Rmb1bneachyear).RemainEW.iQIYI-IPinitiativesbodewellforlong-termgrowthbutexecutionworthmonitoring.WelikeiQIYI'sIPinitiativestoexpandfromgamestovariousentertainmentformats,andamoreholisticapproachpres-entslong-termgrowthopportunitiesandhelpsoffsetthematuringcoremembership/advertisingbusinesses.However,wenotethatprogressremainsintheinitialstage,andwelookforclarityoncon-tentregulation,platformturnaround,cashliquidityandUSlistingconcerns.RemainUW.Ciwen-StrongproductioncapabilitybutlimitedproductioncapacityandchancetoestablishitsownIP:WepreviouslyexpectedthatCiwen,asastrongdramaproducer,couldrecoverfasterfromtheindustrydownturnin2018-20.However,givenitsperformancesofarin2020-21,weturnmorepessimisticonitsoutlook-wenowexpectitsrecoverypathtobeprolonged.OntopofourbeliefthatitischallengingtoestablishIPfordramaproducers,wecitetwomainconcernsbehindourviewonCiwen-lowerdramaASPin2020andforward,andthelimitedproductioncapacityCiwenhas.Wecutour2021-23netprofitforecastsby24/37/48%respectively,andwecutourPTtoRmb4.24.DowngradetoUW.10MOrderofPreference

FoundationExhibit10:OrderofpreferenceMangoChinaEnlightPerfectSongchengHuaceFilmHuayiTencentNetEaseBilibiliExcellentAlphaGroupiQIYICiwenMediaLiteratureMediaWorldPerformanceandTVBrothersMedia0700.HKNTES.OBILI.O300413.SZ0772.HK300251.SZ002624.SZ300144.SZ300133.SZ002292.SZ300027.SZIQ.O002343.SZRatingOverweightOverweightOverweightOverweightEqual-WeightEqual-WeightEqual-weightEqual-weightEqual-WeightEqual-weightEqual-WeightUnderweightUnderweightTradingCurrencyHKDUSDUSDCNYHKDCNYCNYCNYCNYCNYCNYUSDCNYPriceTarget720.00150.00140.0070.7080.0010.8019.1003.3314.004.24CurrentPrice544.00112.55108.6658.1680.209.9719.4613.8512.135.02Upside/(Downside)(%)32%33%29%22%0%8%-2%0%2%-9%-14%15%-16%MarketCap(inUSDmm)662,804.176,533.649,179.916,004.410,686.94,520.65,835.06,555.01,655.31,197.81,659.08,969.6368.5AvgDailyTradedVol(inUSDmm)1,673.7344.1455.196.436.346.3131.579.630.422.724.5233.67.8StreetView:RatingsBuy/Overweight0%0%0%91%90%100%100%74%78%100%94%71%50%Hold/Equal-weight7%10%0%0%21%11%0%0%29%BullCaseValue1,000.00194.00166.00107.30104.0016.7027.4024.508.048.208.7827.006.66Upside(%)84%72%53%84%30%68%41%51%32%44%128%123%33%BearCaseValue500.0085.0073.0043.2060.007.7010.5010.904.653.101.677.002.01Downside(%)-8%-24%-33%-26%-25%-23%-46%-33%-24%-46%-57%-42%-60%Risk/RewardSkew10.43.03.01.0MorganStanleyEstimatesFY21eHKDUSDUSDCNYHKDCNYCNYCNYCNYCNYCNYUSDCNYSales698,76913,5983,11217,39411,5011,44010,0052,4504,0542,8182,1484,978816EBITDA234,6803,077(437)8,4802,0047631,4701,535345792971,86998EBIT203,8292,499(1,021)2,4241,7077521,4071,121330(6)179(792)91EPS18.353.59(2.06)1.361.530.270.750.340.24(0.02)(0.03)(1.27)0.18FY22eSales853,11416,5834,31420,47013,4442,08211,8373,6234,2843,1522,4675,741731EBITDA256,3963,901(527)10,6312,7911,1671,9372,3973651906092,37095EBIT224,9283,307(1,283)2,9992,4791,1571,8711,94235299485(97)89EPS20.604.46(2.53)1.642.050.390.970.580.250.050.03(0.40)0.23FY21MSevs.ConsensusMeanSales-1.2%-0.8%3.3%-5.7%-10.2%-41.4%-9.9%1.0%-10.9%-1.4%0.0%0.7%-32.2%EBITDA-6.2%5.7%13.1%38.9%7.4%-17.0%-36.4%-3.4%-34.3%-63.3%0.0%-396.2%-42.6%EBIT-2.2%-13.8%52.7%5.2