Events:
The company announced its semi-annual report for 2021, with operating income of 833 million, with a decrease of 20.7%; net profit by 130 million, with a decrease of 20.1%; and adjusted net profit by 156 million, with a decrease of 4.3%.
Comments:
Since the development of new games is in the investment period, the old games will naturally fall back, resulting in the first half of the performance under pressure.
1) domestic income decreased slightly, while sea income increased: in the first half of the year, the company's game revenue was 833 million, which was-20.7% compared with the same period last year, of which domestic income also decreased by 32.9% to 598 million, mainly due to the fact that there were no large-scale new games online during the reporting period. and the natural decline of the old games "Xi Fei Zhuan" and "Xi Fei Q Zhuan" Overseas revenue was 235 million, + 47.8% compared with the same period last year, thanks to the excellent performance of "floating Life for Qing Song" in China's Hong Kong, Macao and Taiwan regions and the South Korean market (Korea's iOS game best-selling list ranked 13th).
2) the gross profit margin has improved steadily: the gross profit margin in the first half of the year was 67.3%, an increase of 1.7pct over the same period last year, which was basically the same as the previous month, mainly due to the increase in the proportion of income from own channels.
3) during the period, the expense rate remained stable, and the R & D investment increased: in the first half of the year, the company's marketing expense rate was 33.7%, with a decrease of 2.4 PCT; the R & D expense rate was 21.4%, with an increase of 8.9 PCT; and the management expense rate was 3.7%, with an increase of 1.6pct.
The profitability of a single user is enhanced, and the results of going out to sea are emerging. The total number of registered users of the company reached 139 million, and the average monthly income (ARPPU) of a single paying user rose to 739.7 yuan, + 27.2% compared with the same period last year. On the one hand, the company continues to maintain high-frequency iteration of the products, with the orderly promotion of long-term purchases, the flagship product "floating Life for Qing Song" is still in the profit release period. On the other hand, the company carries out brand marketing for "floating Life for Qing Song" to expand the influence of IP (launching joint activities with "Chinese Paladin"; partnering with photography agency "Pan Women's Square" to launch "reshaping the new national trend" linkage fashion; design Yooe ancient style spirit pet series blind box based on pet mounts in the game). In the first half of the year, the Japanese and English versions of "floating Life for Qing Song" were launched to consolidate Japan's regional advantages and explore Europe and the United States, which is expected to further release profit increments in the future.
The reserve game enters the test in an orderly manner, and the new theme products gradually fall to the ground. In the second half of the year, two self-developed new Chinese style meticulous painting style games "Ling Yunnuo" have opened online public test reservations, and the number of reservations has exceeded 500000. The authentic novel authorized game "du Lala's Promotion" is expected to be tested in Q4 and plans to create another classic IP on the track with modern theme women. Agent product idol simulation theme mobile game "code: W" has been tested overseas. Based on the test feedback and progress, we estimate that the company is expected to open up new segments of the market for women in the next 1-2 years. In addition, South Korea passed partial amendments to the Telecommunication Business Law on August 31, forcing Apple Inc and Alphabet Inc-CL C App Store to open third-party payment channels. The South Korean market App Store ended its 3:7 split model, and South Korea is an advantageous area for going out to sea. In the future, the company is expected to take the lead in benefiting from the reshaping of the game distribution value chain.
Investment suggestion: the company continues to strengthen the core competitiveness of women to the track, maintain the leading position of the antique key track, at the same time go out to sea with antique themes, consolidate its advantages in the Asia-Pacific region, and continue to explore the European and American markets.
We are optimistic that the company will explore the market potential of new categories such as modern workplace and simulation management. We predict that the net profit of 2021, 2022, and 2023 will be 3.02, 335, and 531 million, corresponding to EPS0.14/0.15/0.24 yuan, and give 10XPE a target price of 1.40 yuan, or HK $1.69, and a "overweight-A" rating.
Risk tips: product user growth is less than expected risk; new travel is less than expected risk; sea business development is not as expected risk; industry policy and regulatory risk.