Key points of investment
Incident 1: Dilong Culture released its 2018 semi-annual report. The company achieved revenue of 1,851 million yuan in the first half of the year, an increase of 57.11% over the previous year; it achieved net profit of 312 million yuan, an increase of 52.63% over the previous year; among them, Meishengyuan achieved net profit of 289 million yuan, and Dilong New Materials achieved net profit of 209.56 million yuan.
Incident 2: The company expects to achieve net profit of 350 million yuan to 450 million yuan from January to September, an increase of 3.42%-32.97% over the previous year.
Standalone mobile games are stable, and online mobile games have entered a harvest period.
Standalone mobile games: The first half of the year achieved revenue of 291 million yuan, an increase of 1.91% over the previous year, accounting for 15.73% of total revenue, and a gross profit margin of 61.46%, an increase of 16.29 pct over the same period last year. The company's stand-alone mobile game business was affected by the industry slowdown and was basically the same as the same period last year. Gross margin increased, making it an important cash flow business for the company. “Never Abandon 3: The World”, which was released during the reporting period, was rated by the Hardcore League as the only star product in May 2018. In the second half of the year, game plans such as “Bollinger”, “Ali's Relaxation”, “Auto Run”, “Infinity Brawl”, “Captain Touch Gold”, and “Cat Story” will be launched one after another.
Online mobile games: Achieved revenue of 106 million yuan in the first half of the year, an increase of 380% over the previous year, accounting for 5.73% of total revenue. Ten online games such as “Bloody Sky”, “Dimensional Summoner”, “Immortal Soul”, and “Here Comes the Legend” have been released online. In the second half of the year, it is planned to launch a variety of quality games such as “Ming Xinlu”, “Dazaidai”, “Dream Animal Town”, “The Legend of Mortal Immortals”, and “Healing the World”. The online game business is gradually entering a harvest period.
The mobile advertising business exploded, and rich data and experience were accumulated. The advertising promotion business achieved revenue of 954 million yuan in the first half of the year, an increase of 172.79% over the previous year, accounting for 51.53% of total revenue and a gross profit margin of 12.29%. It became an important source of revenue growth for the company, but gross margin fell 4.33 pct compared to the same period last year. Tianjin Dianme, a subsidiary of the company that engages in the advertising agency business, became the core agent of Tencent Guangdiantong in 2018, and was rated by Tencent as a gold service provider for the social advertising KA channel.
With IP as the core, the layout of the entire Pan-Entertainment industry chain continues to advance. With IP as the core, the company actively lays out pan-entertainment industry chains such as games, film and television, variety shows, and animation. Sun Company Molong Pictures and Guangmang Pictures jointly invested in the TV series “Sinkhole Hawk Hunting” to be broadcast on August 30.
The revenue of the traditional building materials business is stable, and the profit level has declined. The building materials business achieved revenue of 491 million yuan in the first half of the year, an increase of 0.33% over the previous year. However, due to factors such as rising prices of raw materials, environmental protection requirements for coal to gas, and equipment technology improvements, etc., costs and expenses rose sharply. The gross margin was 18.91%, down 3.37 pct from the same period.
Profit forecasts and investment suggestions: We forecast that Dilong Culture will achieve revenue of 13.835 billion yuan, 4.604 billion yuan, and 5.404 billion yuan respectively in 2018-2020, up 25.20%, 20.06%, and 17.38%; net profit of return to the mother was 723 million yuan, 886 million yuan, and 1,042 million yuan, up 31.72%, 22.49%, 17.67% year-on-year; the corresponding diluted EPS will be 0.85 yuan, 1.04 yuan and 1.22 yuan respectively.
Risk warning: 1) game flow falls short of expectations; 2) market competition intensifies; 3) project process falls short of expectations; 5) systemic risk.
