Box office warmed up by popular films. Cinemas have reopened across China since 20 July. The Eight Hundred and other films have hit the silver screen, boosting the box office gradually. China’s box office revenue has reached RMB5,040m since the reopening. Box office revenue between 20 and 31 August reached 120% of the same period last year, which shows that moviegoers are coming back to cinemas. On 15 September, China Film Projection Association lifted the attendance limit of theatres from 30% to 75%, and we think the new rule will further boost attendance. 

Strong film pipeline at the supply side. Eyes on National Day holiday. Leap and Legend of Deification will hit cinema halls during the National Day holiday, which could further drive the film industry’s recovery. Besides, Detective Chinatown 3 and others are also in the pipeline. We expect 2020 box office to reach RMB20.7bn (previously we had estimated RMB71.7bn). Of which, we expect September-December box office to be RMB15.1bn, equivalent to 85% of the same period last year. 

Industry reshuffled by COVID-19; we expect market share of industry leaders to grow. According to China Film Association, 42% of cinemas faced shutdown risks owing to the pandemic. But this gives industry leaders the opportunity to buck the trend by taking share from small cinemas. For instance, Wanda Film plans to add 162 cinemas, 1,258 screens and 176,000 seats in 2020-22. In 2019, China’s top three cinema lines had a total market share of 31%, far lower than 59% in the US. Long term, we see room for the market share of China’s leading cinemas to grow. 

Film-related companies to enter recovery period. We stay optimistic about the outlook of the film industry, and believe the impact of the pandemic will be short-lived. We think demand for cinemas and high-quality films will stay intact. With blockbusters hitting the screen during the National Day holiday, we believe the film market will gradually recover. We maintain our Buy ratings on Wanda Film and China Film, and prefer Enlight Media, upgrading the stock to Buy from Hold. We also raise our TPs for all three stocks. Key downside risks: Resurgence of the pandemic, lower-thanexpected box office, and intensifying competition.