1. Event: Publication of the Annual Report Industry Report
The company released its 2013 performance report today, achieving operating income of 325 million yuan, an increase of 75.4% over the previous year; net profit attributable to shareholders of listed companies was 51.03 million yuan, an increase of 205.7% over the previous year, corresponding to EPS 0.20, an increase of 233.33% over the previous year.
2. Our analysis and judgment
(1) The acquisition of high-quality mobile game companies greatly improved the company's operating structure
The company's operating profit in 2013 was 60.29 million yuan, a year-on-year increase of 1691%. We can see a significant improvement in the company's profitability. Meifeng Digital, which was acquired by the company, is a leading mobile game developer in China. Its “King” series of games has been in the top of the rankings for 13 years. Recently, the company's new work “Eye of the Dragon” is being closed and tested with first-tier platforms such as 91, Dangle, and UC, and is expected to perform well.
(2) The company reduces investment in traditional mobile game marketing and improves net profit levels
The company's website game and mobile game have entered a stage of steady operation, advertising expenses have been reduced accordingly, and net interest rates have gradually improved.
(3) The company sells its own mobile game products, and the business structure is gradually improving
The company exclusively represented the first mobile game “Immortal Warfare” produced by Molin in '13. Due to various issues, this product did not become a tens of millionth class product as expected by the market. However, we believe that the cooperation between the company and first-tier developers in the industry will not stop, and that in 2014, the company's agency and operating investment in mobile games will increase rapidly with the rapid development of the industry.
3. Valuation, investment advice and main risks
We expect that after the acquisition is completed, the company's net profit for exam preparation in 13/14/15 will reach 501 million/148 million/240 million yuan respectively, corresponding to the diluted EPS of 0.2/0.57/0.9 yuan. The current stock price corresponds to 13/14/15 PE divided into 148X/52X/32.8X, and we maintain the “recommended” rating.
Main risks:
Competition in the industry intensified, the division of developers declined, and the target company that was acquired experienced a loss of key personnel