Incident: The company announced its 20Q3 results. The 20Q3 single-quarter revenue was 440 million yuan (YOY -13.0%), net profit returned to the mother was 41 million yuan (YOY -69.2%), and net profit deducted from the mother was 105 million yuan (YOY -41.3%).
Comment:
1. 20Q1-Q3 brought about an increase in overseas markets. Changes in the fair value of non-current financial assets and adjustments in revenue standards affected profit scale.
① The company's 20Q1-Q3 revenue was 1,366 million yuan (YOY +13.7%), net profit of 485 million yuan (YOY +40.5%), net profit deducted from the mother was 374 million yuan (YOY -11.7%), and net operating cash flow was 281 million yuan (YOY -11.5%). The 20Q3 quarterly revenue was 440 million yuan (YOY -13.0%), net profit returned to the mother was 41 million yuan (YOY -69.2%), and net profit deducted from the mother was 105 million yuan (YOY -41.3%). ② 20Q1-Q3's sales expenses are 325 million yuan, corresponding to Q3 sales expenses of 140 million yuan, and the sales rate is 31.82%. The main reason is that the company implemented the new revenue standards and adjusted promotion expenses from main business costs to sales expenses.
20Q1-Q3 has R&D expenses of 286 million yuan, corresponding to Q3 R&D expenses of 103 million yuan. The R&D rate is 23.41%, an increase of 5.82 pct over the previous year. The company is paying more attention to R&D investment. The financial fee rate was 1.59%, mainly due to a decrease in interest income and an increase in exchange losses.
② 20Q3 The company's overall gross profit margin was 73.83%, a slight decrease from the previous year, and the overall net profit margin was 9.23%. There was a decline both year-on-year and month-on-month. Mainly due to adjustments in the company's revenue standards, promotion expenses were adjusted from main business costs to sales expenses. At the same time, promotion expenses for the launch of new tours increased.
2. Classic 20Q1-Q3 products performed steadily, and “One Punch Man” contributed to overseas growth; Q4 reserves “National Miracle 2”, “Tides of Darkness” and “Street Fighter: Showdown” are awaiting launch.
① 20Q1-Q3 “One Punch Man: The Strongest Man” performed well. It was launched in Hong Kong, Macao, Taiwan, and Southeast Asia in January and June 2020, respectively. They all received good feedback, and overseas revenue contributions increased. ② In August 2020, the company's self-developed self-developed product “Crimson Blade” was launched. It is a classic magical-themed RPG, endorsed by Shen Teng. The iOS game bestseller list reached 24, and currently has an average ranking of 105. ③ The company's future key product reserves include “National Miracle 2” (Tencent Sole Generation/Existing Edition), “Tides of Darkness” (existing edition), “Street Fighter: Showdown” (Tencent Only/existing edition/multiple rounds of test polishing, launched on 11.26).
④ The company has deep R&D experience in mainstream mobile game categories such as MMOs and cards. On this basis, it explores new two-dimensional categories and has established its own advantages in the field of comic reform IP games. Key new products have received distribution capacity and traffic support from Tencent.
3. The company strives to establish a long-term incentive mechanism within the team to enhance the company's cohesion.
① In August 2020, the company announced the second phase of the employee stock ownership plan. The total number of participating employees did not exceed 122. Among them, Chairman Liu Huicheng (holding 6.05% of the company's total share capital as of the end of the 20Q2 period) held 37% of the employee's shareholding plan and 0.37% of the company's total share capital. The share source was repurchased, accounting for 1.01% of the total share capital. The transfer price was 3.8 yuan of shares (2020/8/26, the company's closing price was 8.36 yuan of shares). ② In June 2020, the company launched a second share repurchase plan. The total repurchase amount was RMB 100 to 200 million, and the repurchase price did not exceed RMB 8.61 per share. All of the shares repurchased were used for equity incentives or employee shareholding. As of September 30, the company had repurchased 25.71 million shares, accounting for 0.93% of the company's total share capital, with a transaction amount of 200 million yuan and an average price of 7.78 yuan/share. The repurchases have all been completed.
4. Profit forecast and investment rating: We expect the company's net profit to be 653/968/1,165 billion yuan in 2020-2022, respectively. Corresponding to the current PE is 28/19/16X respectively, giving a “recommended” rating.
Risk warning: Product launch progress and performance fall short of expectations, asset impairment risk, corporate governance risk, industry policy risk, market style change, etc.