Event: the company's overall income in the first half of 2021 was 4.24 billion yuan, an increase of 26% over the same period last year, of which the income from education business surged 71.2% to 2.41 billion yuan, surpassing games to become the main revenue contribution sector. the operating loss of the education sector has also narrowed significantly by 86% to 35.7 million yuan, and profits are just around the corner. Revenue from the game business fell slightly by 3.9 per cent to 1.76 billion yuan, similar to the overall performance of the game market in the first half of the year, during which the company's operating profit rose 8 per cent year-on-year to 745 million yuan, while home net profit rose 31 per cent to 565 million yuan.
Summary of the report
Prometheus takes advantage of the market growth trend and maintains the growth of income and share in the five regions with the highest share of income (the United States, Britain, Germany, France and Italy). According to third-party data, global interactive display device sales are expected to grow by 71.5%. During the period, Prometheus sales increased by 82.3% year-on-year, and market share increased to 26.0% from 21.9% in the second half of last year. During the period, Pumi's revenue grew by 74.3% year-on-year, lower than the increase in sales, mainly due to the inventory of AP7 models (in preparation for the AP9 launch in June) and the impact of the depreciation of the euro; however, the company still achieved good cost control, and the gross profit margin of the education sector rose 1.3% month-on-month to 29.9%.
Subsequent growth in the education sector has driven Pumi to launch a new model AP9 in June 2022, which improves the ease of use, connectivity, security, compatibility and service life of the product to meet the key needs of educators for blended learning.
At the same time, Pumi signed an exclusive distribution agreement with AI educational technology company Merlyn Mind in the United States, using the company's sales network to expand sales from hardware to SaaS. B2G is a key strategy for the education sector to develop in the Middle East in Asia. In the Egyptian market, the company signed a contract with 2022Q1 to supply 94000 tablets to Kmuri 12 schools across the country, which will start shipping in the second half of this year.
The income of the game was dragged down by the macro-economy, and the number of users maintained growth in the first half of the year. Under the influence of the domestic macro-economy, the consumption of game players became conservative, and the game business income fell 3.9% to 1.76 billion yuan in 1H2022. Due to the high proportion of high-paying players in PC games, under the influence of macro trends, revenue in the first half of the year decreased by 5.2% compared with the same period last year, while mobile game revenue increased by 3.1%. Revenue from 1H2022, the company's flagship IP "magic domain", fell 0.6 per cent month-on-month and 3.8 per cent from a year earlier. Despite the macro impact on revenue, the MAU of PC games grew 34 per cent year-on-year, and the average number of paid households increased 65 per cent year-on-year. In terms of mobile games, the revenue of the "Magic Domain Pocket version", which accounts for the highest proportion of income in mobile games, increased by 7.8% compared with the same period last year.
"Repurchase + dividend" shareholders have higher returns in 2020. In 2021, the company's ROE was 14.5% and 14.2% respectively, with sufficient cash reserves. In mid-2022, it had more than HK $4 billion equivalent cash reserves, and announced an interim dividend of HK $0.40 per share and a special dividend of HK $0.50 per share. In terms of buybacks, the company's cumulative repurchase share capital accounted for about 2.76% of the total in the past year, at a cost of about HK $280 million, demonstrating management confidence.
It is suggested that the company will have growth-driven growth in education in 2022, and the game business will still be under pressure in the short term with macro-economy. We expect the company's performance to return to growth in 2023, and considering that the company's continued buybacks demonstrate management confidence, we give the company a target price of HK $24.0 and maintain a "buy" rating at a price-to-earnings ratio of 10x in 2023.
Risk tips: industry policy risks, game business development is not up to expectations, education orders are not up to expectations.