Core ideas:
Under the influence of regulation and macro environment, 21Q4 advertising is under obvious pressure, while other businesses reflect some external influence but remain relatively sound. (1) 21Q4 games are expected to increase by 7%. The protection of minors in China will have a small impact on the flow in the short term. League of Legends's amortization of mobile games on income will still need amortization in the next two quarters to make a financial contribution; overseas growth will be maintained, and the overall game exchange rate is relatively stable. (2) affected by the regulation of various industries and the macroeconomic downturn, 21Q4 advertising is expected to decline by 16%. (3) the 21Q4 social network is expected to be the same as the same period last year, with steady subscription members but regulated income fluctuations in industries such as live streaming. (4) the simultaneous growth of 21Q4 finance and cloud revenue is expected to be 18%. Compared with 2C business, 2B business is more robust under the impact of external environment. To sum up, it is estimated that the total revenue of 21Q4 will increase by 4% to 137.7 billion yuan.
With the adjustment of the income structure, the overall business gross profit margin fell. It is expected that the adjustment of the income structure will continue to affect the gross profit margin. 21Q4 is expected to have a gross profit margin of 42.8%. The fourth quarter is the peak season for various sales expenses, and the company's investment in promoting new games will lead to a month-on-month increase in sales expenses. The adjusted net profit of 21Q4 is expected to be 28 billion yuan, down 16%.
Profit forecast and investment advice: advertising still needs 2-3 quarters to digest the impact of high base and regulation, and the game going out to sea and 2B business still have strong performance support. Due to short-term regulatory factors, we adjusted our annual income to 5535 yuan and 593.1 billion yuan respectively, and adjusted net profit to 1269 yuan and 140.1 billion yuan respectively, an increase of 3% and 10% over the same period last year. Based on the reasonable value of SOTP, the 22-year performance corresponds to HK $607 per share. It is considered that with the gradual release of the value of the investment company and the adjustment of the base, it is expected to promote the recovery of income and the release of profits in the second half of 22 years, and maintain the buying rating.
Risk tips: stricter supervision, stricter audit of game version numbers, and the risk of being squeezed by short videos.