Events:
1) the company announced its annual report in 2019, realizing operating income of 2.571 billion yuan, net profit of 820 million yuan and net operating cash flow of 1.505 billion yuan, with increases of-31.96%,-23.94% and 11237.09%, respectively. The company plans to pay a cash dividend of 1.30 yuan for every 10 shares to all shareholders, with a total dividend of 250 million yuan.
2) the company announced that it reported 692 million yuan in operating income, 317 million yuan in net profit and 213 million yuan in net operating cash flow, an increase of 1.81%, 14.84% and-51.33%, respectively.
Complete the divestiture of the Internet financial business, and focus on the main business of the game in a comprehensive way. In 2019, the company's main business changed greatly, and the game business accounted for 99.08% of the total revenue. Excluding the impact of Internet finance, we estimate that revenue is down by 3.08% and net profit by 16.51%.
The main reasons why the profit decrease is greater than the income are as follows: 1) there is a certain increase in game-related R & D expenses, which is mainly used for the construction of China Taiwan projects and subsequent reserve products, due to the influence of production and launch cycle, there is a certain time difference between related costs and income; 2) there is a time gap between related costs and income; 2) the loss of bad debts related to Ali e-sports is nearly 40 million yuan, and the main contract project is the ball game. 3) the change of fair value and the loss of credit impairment are nearly 70 million yuan; 4) interest income is 35 million yuan lower than that of the same period last year. The main growth drivers of 20Q1 are: 1) the classic IP games are stable and good, and the number of users and ARPPU values have increased significantly during the Spring Festival; 2) Hefei Ling rhinoceros subsidiary chess and card leisure products perform well. On the whole, we think that the overall operation and finance of the company are relatively sound.
Gross profit margin has risen steadily and cash flow is expected to continue to improve. The gross profit margin of 2018/19Q1/2019/20Q1 is 83.32%, 82.22%, 83.42%, 87.25%. The main reasons for the change are: 1) after divesting the Internet financial business, the efficiency of the company's resource allocation has been improved; 2) during the reporting period, the gross profit margin of the company mainly comes from old products, and its gross profit margin is higher than that of ordinary new games. The net operating cash flow of 2018/19Q1/2019/20Q1 Company is-0.14 USD 4.39 Cash 15.05 RMB respectively. The main reasons for the change are: 1) 19Q1 has a higher base of factoring business; 2) 20Q1 is slightly delayed in some channels affected by the epidemic.
Continuously optimize the R & D process and personnel structure, and add new reserve projects for placement and design. By the end of 2019, the company had 1537 R & D personnel, accounting for 75.38% of the total employees, with R & D investment of 824 million yuan, accounting for 32.05% of total revenue, which was higher than that of similar enterprises as a whole. According to the annual report and previous public meetings, the company is currently working on nearly 10 products, mainly including: 1) "Journey", "Ball Battle" classic IP series products; 2) two new placement mobile games; 3) new shooting mobile games (next generation illusory 4 engine research and development); 4) secondary and other new categories.
The buyback plan is progressing steadily, and the total amount of centralized repurchases is expected to be about 640 million yuan in the next six months. According to the announcement, the company plans to buy back no less than 1 billion yuan and no more than 2 billion yuan of public shares with its own / self-raised funds through centralized bidding from October 2019 to October 2020, and the repurchased shares will be used for equity incentives or employee plans. By April 10, 2020, the company had bought back a total of 20.91 million shares with a total transaction value of 363 million yuan. In addition, the company's dividend has been maintained at more than 30% of the annual profit for a long time, and the 2017 / 2018 cash dividend for 2019 is 4.05 / 250 million, accounting for 31.38% of the distributable profit, respectively. On the whole, the company's blue chip properties are outstanding, internal incentives and external feedback.
Investment suggestion: as the representative manufacturer in the PC game era, the company sharpens its innovation. In the current era of stock competition, on the one hand, it seizes the key track to invest core resources, on the other hand, it comprehensively develops the overseas blue ocean market. We are optimistic about the company's way back to the top manufacturers. We expect the company's net profit from 2020 to 2022 to be 1.103 billion yuan, 1.457 billion yuan and 1.782 billion yuan respectively, corresponding to 0.54,0.72 yuan and 0.88 yuan EPS respectively, maintaining the "buy-A" rating.
Risk tips: long-term equity investment projects are uncontrollable, the progress of new product research and development is not as expected, the promotion effect of overseas markets is not as expected, the commercial progress of 5G cloud games is lower than expected, and the industry regulatory policy changes.