Key points of investment

Dentsu Network: Committed to the development and operation of quality online games and exploring the diversified development of games Hangzhou Diantun Network Technology Co., Ltd. is an Internet company dedicated to the independent development and operation of boutique online games. The company was founded in 2008 and officially listed on the Shanghai Stock Exchange in 2016. It features competitive online game products. Through an efficient game development system and precise game promotion plans, the company developed into an online game development and operator integrating creative planning, art design, technology research and development, product development, game promotion, operation and maintenance, and overseas cooperation.

Mobile games lay the foundation for development, and mobile games drive new business growth

Since its establishment more than ten years ago, Dentorm Network has been committed to the development, production and operation of boutique online game products. As a game company that originated in mobile games, the mobile game “Dream Three Kingdoms” provided the company with stable revenue and also laid a solid user base for the company's subsequent “end-to-end” transformation. With the penetration of mobile devices, the company closely followed the trend, changed the original single category of client-side games, invested heavily in mobile game research and development, and distributed games that were very popular among players. At the same time, Dentsu Network is based on the two core “mobile games+mobile games”, gradually expanding the diversification of game categories and exploring various sectors such as console games, VR games, and comics.

Core competitiveness: The long-term layout of “Guofeng+E-sports”, focusing on game development, we believe that the company's core competitiveness mainly lies in 1) the company's commitment to integrating the two elements of “Guofeng+E-sports” to create the “Dream Three Kingdoms” series of Chinese wind e-sports games. Recently, it has collaborated with museums and cultural tourism groups to further cultivate outstanding traditional Chinese culture; 2) The e-sports competition operation system is complete, and various events continue throughout the year to increase player activity; 3) the “R & D+operation+talent” strategy goes hand in hand and has a solid foundation of strength.

Growth prospects: Game product reserves are abundant, and overseas+e-sports are blooming. We believe that the company's business growth is driven by three major driving forces: 1) mobile game revenue is stable, with multiple mobile game reserves driving business growth; 2) the company acquired Mobile Network in 2019, adapting to the trend of games going overseas and actively expanding overseas business. The share of overseas revenue is gradually increasing; 3) The e-sports industry is developing rapidly. The country implements various policies to support the development of the industry. The company invests in multiple related companies and actively lays out the industrial chain to form an industrial synergy effect.

Profit forecasting and valuation

We expect the company's revenue for 2022-2024 to be 849/10.74/1,244 yuan respectively, an increase of -14.79%/26.54%/13.95%; the net profit of the mother is 2.55/3.75/425 million yuan respectively; EPS is 1.04/1.52/1.73 respectively, at the closing price of March 24, 2023, corresponding PE is 27.32/18.56/16.35 times, respectively, covering the “buy” rating for the first time.

Risk warning

The company's revenue mainly depends on the risk of individual games, the risk of self-developed projects falling short of expectations, industry competition risk, policy risk, brain drain risk, and overseas market risk.