Event: the company publishes its 2023 semi-annual report. 23H1 achieved operating income of 458 million yuan, down 29.28% from the same period last year; net profit from home was 155 million yuan, up 77.5% from the same period last year; and net profit from non-return was 119 million yuan, up 6.85% from the same period last year. In the second quarter alone, 23Q2 achieved operating income of 213 million yuan, down 33.39% from the same period last year and 13.54% from the same period last year; the net profit from home was 76 million yuan, up 36.37% from the same period last year, down 4.12% from the previous quarter; and the net profit from non-return was 59 million yuan, down 17.67% from the same period last year and 2.92% from the previous month.

Revenue due to the product cycle has declined, and 23H1's revenue has dropped 29.28% compared with the same period last year. This is mainly due to the fact that some of the company's games are still under development or testing in the first half of the year, and the revenue of mature game products has declined due to the impact of the product life cycle. The company's gross profit margin on mobile games was 78.47%, a year-on-year reduction in 0.83pct.

The company's income in the first half of the year is mainly contributed by stock products such as "National Miracle 2", "Superman: the strongest Man", "the Ultimate Battle of Boxing 98" and so on. Adhering to the concept of long-term operation, the company upgrades and adjusts the content of the game, and holds large-scale celebrations to mobilize the enthusiasm of users and prolong the life cycle of the game. For example, on June 19, "Heroes of Magic: war era" opened the sixth anniversary celebration, July 27 "one punch Superman:

The strongest man "Hong Kong, Macao and Taiwan version launched a new game" specialized system "," Boxing King 98 Ultimate Battle OL "

The seventh anniversary celebration of the daily service version will be held on August 18. 23H1's sales expenses decreased by 35.46% year-on-year, and the sales expense rate decreased by 2pct compared with the same period last year. We believe that with the reduction of marketing and promotion costs of stock products, the profits of stock products are expected to be fully released.

The domestic and overseas markets are in parallel, the Mini Game track is actively laid out, and the reserve products are expected to be in the domestic market. The company said that it will actively explore in Mini Game and plans to actively enter the Mini Game market through self-research on Mini Game, mature game projects and new research and development of Mini Game versions of games under research. In the overseas market, the SLG products being developed or tested by the company include "code M" and "code H"

And "code S".

In the first half of 2023, the actual sales income of China's game market increased by 22.16% month-on-month to 144.3 billion yuan, and users' willingness and ability to spend gradually rebounded. According to the previous Douyin Mini Game user survey report, 11.9% of Douyin game users only play Mini Game, we believe that the company's Mini Game exploration is expected to expand the increase based on the stock of players.

Actively embracing innovation and steadily advancing the strategic layout of AI+UGC

On June 25, the company announced a strategic cooperation with Beijing Youmi Interactive to jointly develop "AI Game creation platform", lowering the threshold for open world game development, so that individuals and small teams can also develop large-scale open world games, and share game results through this platform to achieve "AI+UGC". On July 17, the company announced a strategic partnership with traveler AI to jointly promote the innovative application of AIGC technology in the game industry. We believe that the company has tried to explore and layout in the technical layer, platform layer and application layer of AI, and is expected to fully benefit from the efficiency improvement of AI to the industry in the future.

Risk tips: macroeconomic risks; intensified competition in the industry, risk of changes in industry regulatory policies, risk of new game research and development and operation, risk of loss of core personnel, etc.