Event: The company released its report for the third quarter of 2020
On October 28, the company released its report for the third quarter of 2020. The company achieved revenue of 1,366 million yuan in the first three quarters of 2020, an increase of 13.64% over the previous year; the net profit of the mother was 485 million yuan, an increase of 40.58% over the previous year. In the third quarter, the company achieved operating income of 440 million yuan in a single quarter, a year-on-year decrease of 13.04%; the net profit returned to the mother was 41 million yuan, a year-on-year decrease of 69.4%.
Revenue maintained a high growth rate in the first three quarters. Cost-side fluctuations were mainly due to the rapid increase in revenue of accounting processing companies in the third quarter and large fluctuations in costs. The main reason for this was changes in accounting processing. The company has now moved promotion expenses from main business costs to marketing expenses, which has led to a sharp reduction in operating costs, a sharp rise in marketing expenses, and no significant fluctuations in overall marketing costs. In addition, the company's advance payments increased by 34% compared to the end of last year, mainly due to IP procurement. Other financial data that showed significant fluctuations was financial expenses, which increased 80% over the same period of the previous year, mainly due to a decrease in interest income and an increase in exchange losses. Fluctuations on the company's cost side are generally within a normal range.
After the Q3 launch of the new game “Crimson Blade” was optimized, it performed well in September. “Street Fighter” is expected to go live on Q4 in Q4, and the new product “Crimson Blade” launched by the company Q3 was updated on a large scale in September, and it basically maintained the top 50 ranking in the App Store's free games list throughout September. The company continues to increase R&D investment. 2020Q3 R&D investment reached 286 million yuan, an increase of 24.34% over the previous year. The company's current reserve projects include “National Miracle 2”, “Tides of Darkness”, “Roland Genesis”, “Hypnos Hypnos”, “Street Fighter: Showdown”, and “Those in Need of Protection”. Among them, “Street Fighter: Showdown” has already obtained a version number, or will be officially launched in November. The publisher is Tencent, and this product is expected to become the company's new profit booster.
Optimistic about the company's future product line and overseas revenue, maintaining the “Highly Recommended” rating. As of September 30, 2020, the company has repurchased a total of 25,714,489 shares, accounting for 0.93% of the company's total share capital. The transaction amount has reached nearly 200 million yuan. The repurchase plan has been implemented. The overall composite market expectations demonstrate the company's confidence in future profit levels. The IP owned by the company has a wide audience, and overseas revenue is growing rapidly. We expect the company's net profit from 2020 to 2022 to be 651 million, 1,024 million, and 1,284 million respectively; EPS is 0.24, 0.37, and 0.47, respectively; corresponding PE is 33, 21, and 17, respectively.
Maintain a “Highly Recommended” rating.
Risk warning: The progress and quality of the launch of new games falls short of expectations, the life cycle of existing games is exhausted, and policy risks.