Incident: The company disclosed an interim report on the evening of August 28, 20, and achieved revenue of 7.768 billion yuan in the first half of 2020, an increase of 12.02% over the previous year, mainly driven by continued growth in the Internet gaming business; Guimu's net profit was 1,602 million yuan, an increase of 36.02% over the previous year; after deducting 1,517 billion yuan from Non-Gumo, an increase of 135.29% over the previous year.
According to the retrospective breakdown of the 2019 annual report, 20Q2 achieved revenue of 3,964 billion yuan, an increase of 12.99% over the previous year, an increase of 4.19% over the previous year; the net profit of returning mother was 799 million yuan, an increase of 51.01% over the previous year, a decrease of 0.63% over the previous month, after deducting 723 million yuan from the non-Gummo, an increase of 60.27% over the previous year and a decrease of 8.96% from the previous month.
Games grew steadily in the first half of the year, and the launch of some blockbusters affected by the pandemic was delayed until the second half of the year. Internet gaming business 20H1 has revenue of 6.727 billion yuan (accounting for 86.6%), YOY +16.6%, including game operating revenue of 4.996 billion yuan, YOY +8.47%, game licensing revenue of 960 million yuan, YOY -8.69%, game development revenue of 13 million yuan, YOY +15.12%, and game software sales of 717 million yuan.
Stock game performance is stable and gross margin is high, and game promotion expenses have increased. The company's overall gross margin for 20H1 was 54.33%, an increase of 4.89 pct over the previous year. Among them, the gross margin of the Internet gaming business was 61.10%, an increase of 4.02 pct over the previous year. The company's four 20H1 expenses were 2,462 billion yuan, an increase of 18.58% over the previous year, of which 20H1 sales expenses were 1,191 billion yuan, an increase of 24.99% over the previous year.
The company continues to increase the development and market segmentation of new games, and has a rich reserve of new products. Tencent's one-generation “Dragon Valley 2” was officially launched on July 9. It ranked 10th on the highest bestseller list. Currently, it is ranked around 60 on the bestseller list. Currently, “Celebrate the Years After”, “Legend World”, “Code Name: Expedition (TBD)”, “Komori Life”, “Famine (Tentative)”, “Project D (TBD)”, “Castlevania (TBD)”, and “Dragon Warriors (TBD)” are being developed, covering MMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG, ARMORPG Place various categories such as management, training, cards, etc., various games and Tencent, a core shareholder Cooperation helps to enhance the stability of future performance.
In addition to gaming, cooperation with Tencent in many areas continues to deepen. In June 2020, the company acquired 10% of Shanghai Longrui's shares and plans to increase its capital by 3.1 billion yuan. The Shanghai Songjiang District Government and Tencent Cloud Computing (Beijing) Co., Ltd. have signed a cooperation agreement to invest in the Yangtze River Delta AI supercomputing center. Shanghai Longrui will participate in it and be responsible for data center project construction and other related matters. On July 27, Tencent transferred 18 million A-shares of Century Huatong through a bulk transaction, accounting for 0.24% of the total share capital of the listed company. The transaction price was 10.20 yuan/share. After the equity change was completed, Linzhi Tencent's shareholding ratio reached 5.00%, which helped the company and Tencent deepen the long-term cooperative relationship between the company and Tencent in game licensing, distribution and operation.
Investment view: The company's Internet gaming business drove revenue and profit growth in the first half of the year. Profits were delayed due to the impact of the pandemic and the like on the launch of some games, but the company continued to deepen its long-term cooperative relationship with Tencent in game licensing, distribution and operation, and in conjunction with the company's investment cooperation to promote the Tencent Supercomputing Center IDC project through convertible bonds, the company joined hands with core shareholders Tencent to continue to increase the future layout of 5G, win new profit growth points, and reduce the pressure on the company's financial expenses, etc., which will help enhance the company's long-term performance stability. We are maintaining our earnings forecast for the time being. We expect the company's net profit to be 3.7 billion/4.5 billion in 20-21, with a corresponding valuation of 22x/18x. We are actively following Tencent's exclusive “Celebrate the Years”, “Legend of the World”, which will be launched within 20 years, and the continued catalysis of 5G applications in the second half of the year.
Risk warning: The launch time of the new game fell short of expectations; market competition intensified; macroeconomic impact