Main points of investment
Event: 21H1 achieved operating income of 929 million yuan, yoy+79.74%, home net profit of 200 million yuan, yoy+344.28%; of which Q2 realized operating income of 413 million yuan, qoq-19.99%, return net profit of 50 million yuan, qoq-66.99%, performance below market expectations.
Comments: the impact of industry regulation led to the slowdown of Q2 performance. 21H1's operating revenue increased by 79.74% compared with the same period last year, of which the Internet marketing business realized income of 799 million yuan (yoy+112.17%), accounting for 85.97% of revenue (yoy+13.14pct), mainly due to Clockwork consolidation and business expansion. The industry where the company's advertisers are still mainly games, e-commerce and applications, accounting for 49.67% 18.97% 14.02% of business income respectively. In terms of rates, the gross profit margin and net profit margin of the company increased after the divestiture of the forging business, with 21H1's gross profit margin of 28.72% (yoy+8.60pct), sales expense rate of 2.46% (yoy-0.51pct), management expense rate of 1.18% (yoy-3.16pct), financial expense rate of 0.45% (yoy-0.06pct), R & D expense rate of 1.19% (yoy+0.20pct), and net interest rate of 21.56% (yoy+12.84pct). 21Q2's operating income decreased by 19.99% month-on-month, and its gross profit margin was 19.48% (qoq-16.63pct). We believe that it is mainly due to the tightening of industry supervision and the "IDFA New deal".
Impact, alliance advertising recommendation accuracy is partially affected, we expect the policy impact is expected to weaken in the second half of the year, while cooperation with Kuaishou Technology is expected to contribute to the increase.
When casual game advertising is realized, it is expected to grow with advertising alliance. Previously, the realization of casual games is mainly domestic purchase, advertising realization is mainly based on low inventory, low eCPM patch advertising, and the overall commercialization ability is weak. With the rise of short video and giant advertising alliance, the emergence of in-game incentive video advertising has effectively increased advertising inventory and advertising unit price, and the commercialization ability of leisure games has been greatly improved.
In addition, with reference to the development experience of overseas super media, when its own media develops to a certain extent, the giant will build core off-site traffic and reuse its advertising algorithm in Taiwan and its commercial system. The peak advertising alliance of Google and Facebook Inc accounts for about 40-50% of its own media advertising revenue. We expect that pangolin will still be in the process of rapid expansion in the next few years, and the realization of leisure game content is expected to benefit the industry dividend.
The industrialized middle platform brain can empower R & D, and the industrial production capacity and success rate of the company's leisure games can be improved. The company has built an industrial platform, relying on byte beat, Kuaishou Technology and other Internet companies to provide massive data to achieve industrial production of leisure games, development efficiency and success rate are expected to improve.
In addition, the company and byte jump jointly set up an incubation college to gather third-party long-tail production capacity; work with Kuaishou Technology to build an independent brand of "Little Orange", tap excellent content for flow realization, and attract more content creators, which is expected to achieve a virtuous circle, constantly expand content ecology, and increase market share.
Earnings forecast and investment rating: considering that 21Q2 is affected by industry regulation and other factors, and its performance is lower than expected, we downgrade our previous profit forecast, which is expected to achieve EPS2.99/4.26/5.81 yuan in 21-23 years, compared with 3.69x5X for the previous share price of PE, which is optimistic that the company's leisure game content industrial production capacity and success rate will be improved, and the "buy" rating will be maintained.
Risk hint: the turnover of accounts receivable is not as expected, the content is not creative enough, and the supervision of the industry is stricter.