1H22 performance meets the forecast
The company announced 1H22 results: revenue of 268 million yuan, down 64.9% from the same period last year; adjusted net loss of 86.87 million yuan, net profit of 314 million yuan in the same period last year. The company's performance fell into the range of 250-270 million yuan in forecast income / 60-90 million yuan in adjusted net loss.
Trend of development
The stock of products is naturally declining, and the Japanese version of "the strongest snail" may contribute to 2H22. The company's 1H22 revenue fell by 65% per cent to 268 million yuan, mainly because the stock of products entered the mature stage, the flow naturally declined, of which the "strongest snail" 1H22 realized income of about 230 million yuan (5.2 / 300 million yuan respectively), accounting for 88% of the total revenue. In terms of the new region, the company launched "the strongest snail" in Japan in June this year, which currently ranks about 50 on the best-selling list of iOS games in Japan. Considering the long-term stability of Japanese game users' payment and the good level of localization of the company's game, we judge that the Japanese version of "the strongest snail" will achieve larger-scale pipelining contribution in 2H22, and the medium-and long-term pipeline trend may be relatively robust. In terms of gross profit margin, 1H22 also reduced 13ppt to 62%, mainly due to the fact that the life cycle of some mature products is expected to be longer than that of the same period last year, resulting in less revenue recognition. At the same time, the gross profit margin of the current period has declined due to the current cost confirmation after the launch of the Japanese version of the strongest snail in June and the incomplete release of running water in the first half of the year.
The new regional version has led to an increase in sales costs month-on-month, and R & D investment has been strengthened to support more than a dozen ongoing projects. The company's 1H22 sales expenses increased by 156.5% to 152 million yuan, and we judged that the main increment was the pre-launch marketing expenditure of the Japanese version of the strongest snail; the sales expense rate increased by 24.5ppt/39.3ppt to 57% compared with the previous month. We believe that the current product marketing investment as a whole is relatively stable, marketing expenses may stabilize in the follow-up. In terms of R & D investment, the company's 1H22 R & D expenditure increased by 208% year-on-year to 55.64 million yuan. According to the announcement, the number of R & D personnel and salaries and benefits increased in the first half of the year. We believe that the company continues to strengthen R & D investment to support the construction of projects under research, which is conducive to improving and improving product quality.
The game reserve is abundant, strengthen the external cooperation to expand the game user base. According to the company's announcement, the company currently has 13 mobile games in stock, among which the products the company expects to launch within this year include the interactive plot card game "New Chinese Paladin waving the Sword" (jointly operated with middle-hand games in the Chinese mainland area), the female placement game "Code: Key" (agent) and the self-developed placement game "Devil's Plan". In addition, the company expects to launch six of the four products in 2023, including three products to be launched in 2023, including "time Travel Service" (self-developed Rogue-likeRPG, which is expected to launch globally in 2023), "Super Cat Program" (agent, leisure category) and "Blade Heart 2" (agent, cool running category). We believe that the company's overall product reserve is abundant, foreign cooperation with well-known IP and manufacturers, will further expand its inherent game user base and enhance the influence of celadon brand.
Profit forecast and valuation
Keep the profit forecast unchanged. The current share price corresponds to 2022 Universe 9x / 5x Pmax E. Maintain an outperform industry rating and a target price of HK $5.20, corresponding to 10.0 times 2022 Pmax E, with 10% upside space.
Risk
Macroeconomic downturn affects entertainment spending, release of version numbers and other industry policy risks, a single game depends on risk, game launch progress or flow is not as expected, liquidity risk.
