The Zhitong Finance App learned that China Merchants Securities International released a research report stating that it covered Celadon Games (06633) for the first time and gave it an “increase in holdings” rating, with a target price of HK$8.3. Celadon's revenue for fiscal year 22 reached 630 million yuan, and the adjusted net profit was 51 million yuan. In line with previous performance guidelines, it turned a loss into a profit in the second half of '22. Thanks to the normalization of version number approval and the company's steady operation, rich game reserves are expected to significantly increase revenue in fiscal year 23-24.

FY22 results were in line with expectations, and “The Strongest Snail” helped recover performance in the second half of the year

Celadon's revenue for fiscal year 22 reached 630 million yuan, in line with previous revenue guidelines of 62-640 million yuan. Revenue in the first half of fiscal year 22 fell 65% year on year, and revenue growth in the second half of the year recovered to 6% year on year. Thanks to the launch of “The Strongest Snail” in Japan in June 22, it recorded revenue of over 100 million yuan. “The Strongest Snail” performed steadily domestically, with total revenue reaching 575 million yuan in fiscal year 22. The adjusted net profit was 51 million yuan, and the adjusted net profit margin was 13.7%.

Looking at the first half of the year, thanks to increased revenue and cost control (especially in terms of marketing expenses), Celadon turned net profit into profit in the second half of '22. The balance sheet remains stable, with cash of RMB 1.5 billion and no interest-bearing liabilities.

Abundant game reserves are expected to increase revenue significantly

For “The Strongest Snail,” celadon has already been launched in Japan (June 2022) and Thailand (January 2023), and plans to launch Europe and America in 23, and the H5 version domestically in the second half of '23

Since version approval resumed, Celadon has obtained 6 new game editions. One of these games (“Project Enchantment”) was launched in January 2023, and China Merchants Securities International expects the other 5 games to be launched within 2023. Among them, “Legend of Sword and Magic” and “Time Travel Agency” are expected to perform well. Looking at the longer term, among upcoming games, the self-developed SLG game “Project E” is highly anticipated.

China Merchants SecuritiesinternationalHe said that he is optimistic about Celadon's unique design and content, highly sticky user community, and continuously improving R&D capability/operation experience. It is expected that the performance of Celadon games will improve in a stable policy context.Based on the current game plan, Celadon's revenue for the 23/24 fiscal year is expected to reach 2.2 billion yuan/2.4 billion yuan, and the adjusted net profit will reach 421 million yuan/608 million yuan. The target price is set at HK$8.3, which is based on profit for the next 12 months and the target price-earnings ratio of 10 times (slightly below the industry average of 12 times price-earnings ratio), corresponding to 13.7 times/9.5 times the forward-looking price-earnings ratio for fiscal year 23/24.