Summary of the report:
The company's performance is growing rapidly and its net profit performance is slightly higher than expected. Giant Network 2017H1 realized revenue of 1.403 billion yuan, an increase of 33.61%, a net profit of 697 million yuan, an increase of 39.55%, and a net profit of 673 million yuan, an increase of 43.75%. The company's return net profit exceeded the upper limit of the performance forecast (656 million), and the performance slightly exceeded expectations. The company's overall gross profit margin remained stable (81.87%, with a drop of 1.6pct), and the increase in game promotion expenditure increased the company's sales expenses (with an increase of 64.69% and an increase of 2pct with the sales expense rate). The increase in the company's interest income has greatly reduced the financial expenses (down 863.81%). The company expects a net profit of 912 million-962 million in the first three quarters of 2017, a year-on-year increase of 14.55% and 20.82%.
The strategy of mobile games has achieved results, and its income contribution is better than that of super-end games. From the perspective of the two major business lines, 1) the revenue of mobile games reached 774 million yuan (up 143.40%), accounting for 55.17% of the total revenue, surpassing PC games for the first time to become the company's largest source of profit. This is mainly due to the fact that the company has changed hands at the end.
And mobile e-sports in the field of precision positions, the use of MMORPG "Journey Mobile Game version", competitive mobile games "Ball Battle", "Street Basketball" and other products have achieved high performance growth. 2) the PC game segment achieved 587 million revenue (down 18.68%). Despite the decline in revenue and the popularity of existing products such as the "Journey" series and "Xianxia World", the company continues to maintain its leading position in the PC-end game market.
Based on the Internet entertainment plate, build an Internet integrated group. In the second half of the year, the sequel of the "Xian Xia" series, "Xianxia World 2", will be tested on Sept. 15, bringing stable flow to the company before taking over; more than 2 million subscribers have been booked for the blockbuster mobile game "Journey 2", which is expected to be launched this year, and the game is expected to contribute greater profit flexibility to the company under the continuous verification of end-to-end logic. The brand "Giant e-sports" was unveiled for the first time at this year's Chinajoy Exhibition, and the layout of the company's Mobile e-sports continues to deepen. In addition, the company accelerated its foray into the field of Internet finance, announcing in July 17 that it would subscribe 300 million yuan to participate in the establishment of Rose Holdings, and the main investor Fintech; announced in August that it planned to invest HK $360 million to participate in the acquisition of Wantong Asia and get involved in the insurance field. The company aims to build a comprehensive Internet group to achieve diversified development.
Investment suggestion: regardless of the follow-up investment income, it is estimated that the EPS from 2017 to 2019 is 0.62, 0.75, 0.87 yuan, respectively, and the corresponding PE is 68-57-49. Coverage for the first time, giving a "overweight" rating.
Risk tips: intensified market competition; policy regulatory risks; product performance is not as expected.