Main points of investment:
The company's revenue and net profit grew steadily in the first three quarters of 2017, with high performance growth for the whole year. In the first three quarters of 2017, the company achieved revenue of 1.971 billion yuan (+ 73.16%) and net profit of 338 million yuan (+ 31.29%), which is in line with our expectations. Since the wholly-owned subsidiary Maisheng Yuanjing was included in the scope of the consolidated statement in May 2016, the overall operation has maintained a good momentum of development, stand-alone games and online games have grown brightly, and advertising revenue has accelerated. At the same time, the company predicts that the net profit for the whole year of 2017 will be 530 million-680 million (+ 40%-80%), exceeding our previous expectations. The company announced that the growth mainly comes from the gradual launch of new online games developed by Meisheng Yuan subsidiary. It is expected that better business performance will be achieved in Q4.
Costs have risen, and Meisheng remains the core engine of growth. The company's Q3 revenue in a single quarter was 793 million yuan (+ 48.36%), maintaining a rapid growth trend. The net profit of 134 million yuan decreased slightly compared with the same period last year. The overall profit growth mainly came from Meisheng's stand-alone games and advertising business, and the gross profit margin was basically the same as the previous month. In terms of costs, the company Q3 began to expand its game and advertising business, and the costs of activities such as game CP sharing, advertising, marketing and other activities increased significantly, we believe that this is the performance of the company actively expanding new business and new products, the company Q3 online games online promotion fees increased, and the advertising business with lower gross margin expanded rapidly. In addition, the decoration materials business due to raw and auxiliary, chemical materials prices, environmental protection requirements and equipment technical reform and other factors led to a large increase in operating costs.
"stand-alone + online games + advertising" is still the core business structure, multi-driven rapid growth. From the perspective of the company's business structure, the company's revenue and net profit in the first three quarters mainly benefited from stand-alone games, online games and advertising business, and the better-than-expected results in the fourth quarter came from the volume of new online games, which was in line with our previous judgment.
On the basis of doing well the traditional intermodal transport platform and the forward payment model, the stand-alone game business focuses on the research and development of boutique games exclusively represented by the operator Migu Mutual Entertainment, and cooperates with Migu Mutual Entertainment in the way of content providers. and try to add a new backward advertising cash model. The online game business has achieved the reserve of high-quality IP in 2016, and Q3 new products online games have been launched one after another, among which "Bath Blood Changsky" and "dimensional summoner" are both online game products issued by the company. The company's advertising revenue has also ushered in rapid growth since 2016, engaged in Internet agency business, outstanding resource advantages, and will also become an important source of income for the company in the future.
Profit forecast and valuation analysis. According to the company's three quarterly reports and annual results forecast, we expect the company to achieve revenue of 2.676 billion yuan, 3.345 billion yuan and 4.147 billion yuan respectively from 2017 to 2019, and realize net profit of 609 million yuan, 807 million yuan and 1.043 billion yuan respectively. The EPS from 2017 to 2019 is 0.71,0.95 and 1.22 yuan respectively. With reference to the consensus expectation of PE of comparable companies in the same industry in 2017, and considering the company's business transformation and subsequent catalysis of online games products, we give the company a valuation of 25 times in 2017, corresponding to the target price of 17.75 yuan. Maintain the buy rating.
Risk hint: the performance of mobile game products is not as expected, the profit commitment is not up to standard, and the goodwill impairment risk.