The company released its 2019 semi-annual report, with operating income of 1.123 billion yuan, down 31.50% from the same period last year, and net profit of shareholders belonging to the parent company was 126 million yuan, down 10.76% from the same period last year.

Support the main points of rating

The divestiture of interesting pills led to a decline in revenue compared with the same period last year, while the high base of player transfer in the same period last year reduced the net profit of returning home. If the influence of the interesting pill network is excluded, the revenue of the same caliber company fell 10.96% in the first half of 2019 compared with the same period last year. The company made a profit of 106.2547 million yuan on the sale of players Gerald Moreno in the first half of 2018, but did not sell similar players in the first half of 2019, resulting in a decrease in transfer revenue and profits compared with the same period last year.

The increase in gross profit margin of the game business and the decline in promotion costs have become the main drivers of performance; the results of the Spaniard Football Club are expected to be fully released in the third quarter. In the first half of 2019, the revenue of the game business declined, but the gross profit margin increased by 12.38% and the promotion cost decreased, which made the net profit of the game business increase by 24.14% compared with the same period last year. The old game "Bawangzhiye" can still maintain a monthly flow of about 100 million yuan despite the decline in promotion costs, reflecting the company's ability to create long-life-cycle games. The overseas edition of "The Legend Of Three Kingdoms: the King's Industry" and "the Age of Cang" have been launched in overseas markets one after another, driving the overseas revenue of the game business to increase by 33.28% in the first half of the year compared with the same period last year. Starting from the third quarter, Elmoso and Borja confirmed the transfer income, the increase in La Liga broadcasting, ticketing, derivatives revenue and advertising sponsorship revenue brought about by the "Wuli effect" in the new season. coupled with the bonus income from entering the Europa League, the performance of the Spaniard club is expected to be fully released.

The improvement of the commercial value of the Spaniard club brought about by "youth training-transfer" and "Wulei effect" is still the long-term booster of the company's performance. The Spaniard club is famous for its youth training, and its management takes into account the team's achievements and commercial realization, forming a virtuous circle. On the one hand, it is expected to create stable income through the business model of "youth training-team training-transfer income generation". On the other hand, the club is expected to become a platform for football exchanges between China and the West and a bridge to open up domestic youth training, creating long-term benefits. With the start of its second season, "Wulei effect" is expected to speed up the realization of B-end advertising sponsorship and C-side derivatives.

Valuation

Based on the expectation of a significant increase in revenue from bonus, transfer, broadcasting and sponsorship of the Spaniard Club, the forecast of the company's return net profit from 2019 to 2021 is adjusted to 4.71,4.36 and 496 million yuan, and the current market capitalization corresponds to a price-to-earnings ratio of 14,15 and 13 times, respectively. Maintain the company's "buy" rating.

Main risks faced by rating

The new game failed to get a version number or could not be launched as scheduled, and the performance of the Spaniard club declined.