Events:
According to the company's semi-annual report on 2022, 22H1 achieved 4.24 billion yuan in operating income, an increase of 26.3 percent over the same period last year, and its mother's net profit was 565 million yuan, an increase of 31.2 percent over the same period last year.
Main points of investment:
The substantial improvement in education business has led to the growth of the company's overall income and profits, and various expense rates have declined. From the perspective of performance structure, due to the repeated impact of the epidemic on users' consumer sentiment, coupled with the company's lack of new games online in the first half of the year, 22H1's game business revenue fell slightly by 3.90% to 1.776 billion yuan, and operating profit decreased by 6.22% to 1.006 billion yuan. Benefiting from the trend of accelerated development of global educational science and technology applications, the company's interactive tablet shipments increased by 82.5% in the first half of the year compared with the same period last year, driving the company's education business revenue to grow by 71.2% to 2.41 billion yuan, the highest growth rate in history. The operating loss of the education business narrowed significantly by 86% to 36 million yuan. In terms of gross profit margin, the company's overall gross profit margin fell 11.78pct to 54.78% year-on-year, mainly due to the increase in the share of education business with lower gross margin in total revenue; at the same time, the gross profit margin of education business fell 5.3pct to 25.3% year-on-year, mainly due to the rise in materials and transportation costs and the sale of old versions of products during the upgrading of the company's products. In terms of expense rate, the sales / management / R & D expense rate of 22H1 company was 10.43%, 10.94% and 13.81%, respectively, which decreased by 2.62pct/3.52pct/3.91pct compared with the same period last year, reflecting a better improvement in profitability.
The growth of game paying users is considerable, and the launch of new products in the second half of the year is expected to stimulate the game business to return to positive growth. The company's PC game revenue fell 5.2% in the first half of the year compared with the same period last year, mainly due to the macroeconomic influence, the willingness of the high-paying players of the company's products to pay became conservative, but under the stimulation of the company's enhanced publicity and in-game activities, the company's small R user base increased, the MAU of the "magic domain" PC games increased by 34% compared with the same period last year, and the average paying users increased by 65%. In the first half of the year, the company's mobile game revenue increased by 3.1% compared with the same period last year, and the revenue of the main product "Magic Domain Pocket Edition" increased by 7.8% compared with the same period last year. In addition, Conquest IP performed steadily in the first half of the year, with the core Egyptian market rising 20.8 per cent year-on-year and non-Egyptian markets growing 57.7 per cent year-on-year. In terms of new products, the company plans to launch two games, "Mobile Game 2" and "Neopets Faerie's Hope" in the second half of the year, and has abundant product reserves in 2023 and beyond. It is expected that with the launch of new products, the pressure state of the company's game business will be effectively improved in the first half of the year, and the performance is expected to return to growth.
The high global demand for educational technology products has further consolidated the company's position as a leader in the interactive tablet business. Promethean, the company's main subsidiary, has maintained its leading position in the global (outside China) K12 interactive tablet market for many years. As schools around the world become accustomed to using educational technology equipment inside and outside the classroom, the demand for blended learning is increasing day by day. The shipments of 2022H1's global interactive tablet market have significantly increased by 71.5%. Under this background, the company's leading position in the industry has been further highlighted, and its market share has increased to 26.0% compared with the previous month, making it the first in the world. The company launched ActivePanel 9, a new interactive tablet product in June, and signed an exclusive distribution agreement with MerlynMind, a leading AI education company, for the US market. In addition, the company continues to promote the B2G project, and the contract signed between the company and the Egyptian government for 94000 Promethean tablets will begin to supply in the second half of the year; since its operation in March, the intelligent platform for primary and secondary schools jointly developed by the company and the Chinese Ministry of Education has received more than 40 million daily visitors and registered more than 21 million people. Overall, the company's education business has entered a turning point, and it is expected that with the successive shipments of the new product ActivePanel 9 and the landing of the company's B2G projects, the company's education business is expected to continue the trend of high revenue growth, and profits and losses are expected to further narrow or even reverse losses.
Profit forecast
We estimate that the company's operating income in 2022, 2023, and 2024 will be 83.15, 97.66, and 11.275 billion, respectively, and its net profit will be 1.265, 17.25, 2.087 million, corresponding to 2.34, 3.19, and 3.86 PE, respectively, according to the closing price on September 2, combined with the exchange rate of 1 Hong Kong dollar = 0.878 RMB, corresponding to 6.4, 4.7, and 3.9 times PE respectively. Cover for the first time, giving a "cautious recommendation" rating.
Risk hint
The risk of the decline of the game; the risk of delaying the launch of new products; the risk of changes in international political forms; the risk of industry policy and regulation; and the liquidity risk of Hong Kong stocks.