Events:
The company released three quarterly reports for 2020, with operating income of 1.366 billion yuan from January to September, an increase of 13.69% over the same period last year, and a net profit of 485 million yuan, an increase of 40.51% over the same period last year. Of this total, 3Q20 realized operating income of 440 million yuan, down 12.96% from the same period last year, slightly lower than Shenwan Hongyuan's expectations; the net profit from home was 41.2605 million yuan, down 69.19% from the same period last year. Without considering the impact of fair value changes, the operating level was slightly lower than Shenwan Hongyuan's expectations.
Main points of investment:
The performance of "True Red Blade" is lackluster, but the return on investment has increased significantly. The company's self-developed ARPG mobile game "True Red Blade"
Launched on August 5, Q3 performance is relatively mediocre, we expect its total pipeline level of 100 million yuan + in the third quarter, superimposed the natural decline of other old Q3 games, the revenue end is slightly lower than we expected. There are three main reasons for the large deviation between the profit end performance and our expectations: 1) Q3 sales expenses increased by 77.2687 million yuan month-on-month, mainly due to increased promotion after the launch of the "True Red Blade", taking into account the income delay, its contribution performance recovery still needs some time. 2) Q3 has a net investment income of 65.7611 million yuan, mainly due to the excellent performance of the new online Zen game "Miracle Archangel". According to Qimai data, "Miracle Archangel" spent most of its third quarter on the IOS best-seller list TOP30. 3) in terms of non-recurring profit and loss, the company Q3 recognized a fair value change loss of 96.3587 million yuan.
The overall gross profit margin was robust, and the increase in receivables and advances led to a decline in cash flow. 1) in terms of gross profit margin, the company's Q3 gross profit margin is 73.83%, with a decrease in 2.03pct compared with the previous month, which is generally stable. 2) in terms of expense rate, Q3 sales expense rate 31.87%, month-on-month increase of 19.69pct, mainly due to Zhenhong's increased purchase promotion; Q3 management expense rate of 5.54%, month-on-month increase of 1.26pct, overall stability; Q3 R & D expense rate of 23.48%, month-on-month increase of 4.90pct, the company continues to increase its R & D investment. 3) in terms of cash flow, the net operating cash flow of company Q3 is 49.135 million yuan, which matches the net profit well, but there is a significant decline compared with the same period last year and month-on-month, mainly due to the increase of company receivables and prepayments (purchase of IP, corresponding prepaid share).
The new product cycle is about to begin, and the contribution is expected to continue to increase for 20-21 years. Palm fun technology Q4 to next year to enter a new round of product cycle, large reserves are rich. Tencent's only ACT mobile game "Street bully: showdown" is expected to be launched on November 26th, with a Taptap score of 7.2 and good test performance. In addition, Tencent's only generation of "National Miracle 2" and "Dark Tide" (both have edition numbers), we expect to launch in 21 years, building a solid foundation for growth from the end of the year to next year.
Adjust the earnings forecast to maintain the "buy" rating. Taking into account the performance of "True Red Blade" and the subsequent product scheduling changes, we downgrade the company's 20-year revenue forecast of 1.74 billion yuan (originally forecast to 2.044 billion yuan), and increase the revenue forecast for 21-22 years to 2.634 billion yuan 3.355 billion yuan (the original forecast is 2.610 million 3.223 billion yuan respectively). The 20-22 year homing net profit is forecast to be 594 million yuan (1.277 billion yuan) (the original forecast is 1.263 billion yuan). The current share price maintains a "buy" rating with a corresponding PE of 31Universe 20max 15x.
Risk hints: asset impairment risk, game project delay / performance underperformance risk, industry regulatory policy marginal tightening risk.
