Core views
The company's revenue has remained stable and its performance has been outstanding. 23H1's revenue was 1,375 million yuan, which is basically the same as 1,374 billion yuan in the same period last year; of these, social networking business was 1,243 million yuan (yoy -1.8%); innovative business was 130 million yuan (yoy +21.1%); 23H1's profitability was greatly increased, of which gross profit was 7.1 billion yuan (yoy +46.5%); net profit was 300 million yuan (yoy +95.8%); net profit was 185 million yuan (yoy +124.1%).
With the gradual improvement of the company's social product layout, it is expected that Blue City's revenue and profit will increase steadily in 24 years.
Brief review
Finance: Revenue remains steady and profit performance is impressive:
(1) Revenue: Revenue will remain stable. In 24 years, the company's revenue may be 1,375 billion yuan, which is basically the same as 1,374 billion yuan in the same period last year; of these, the social business was 1,243 billion yuan (yoy -1.8%). The decline in social business was mainly affected by the adjustment of the social content ecosystem; innovative business was 130 million yuan (yoy +21.1%); mainly due to the steady progress of entrepreneurial business products. With the merger of the company with Blue City Brothers in '24, the company's revenue may grow significantly.
(2) Profit: Profit performance is impressive, product commercialization capacity continues to increase 23H1 The company's profitability has been greatly increased, of which gross profit is 7.1 billion yuan (yoy +46.5%); net profit is 300 million yuan (yoy +95.8%); net profit is 185 million yuan (yoy +124.1%); the company's adjusted EBITDA is 347 million yuan (yoy +64.9%); the company's product commercialization capacity continues to grow. Among them, gross profit margin for social business has increased by more than 50% year-on-year, and the profit margin for products such as Mico has been significantly increased Improve. With the Blue City Brothers merged in August, the 24-year profit margin is expected to continue to grow steadily.
Management: The social matrix continues to improve, and innovative businesses break through quickly:
(1) Social business: The company's product matrix continues to improve, and the profitability of social products continues to improve
With the company's merger with Blued in August, the company's social product matrix was further improved, including star products such as Mico, Yumy, Yoho, TopTop, SUGO, and Blued. Currently, the company has 3 products that have entered the top 30 revenue list for non-game overseas applications in China; and the coverage area has made new breakthroughs in the Middle East, Southeast Asia, North America, Japan and South Korea; the social fields and regions covered by the company's products have further expanded. Moreover, the company's social product profit continued to increase, and 23H1's gross profit of social products increased by more than 50% over the same period last year.
(2) Innovative business: Through the path of large-scale growth, boutique games continue to be launched
The company's innovation business achieved steady growth in revenue. In the first half of the year, the company's boutique games further verified the growth model, and at the same time released 3 promising new products. The company has now incubated many boutique games such as “Taylor's Secret,” “Merge Cove,” and “Sudoku.” With unique gameplay, rich themed activities, and exquisite art scenes, etc., the company has successively received high revenue. Furthermore, the company industry is actively exploring AIGC technology, and it is expected that it will continue to be deployed in game products in the future.
Profit forecast and valuation: We expect the company's revenue for 23-24 to be $35.3 and $4.53 billion, up 26.1% and 28.2%, respectively; the company's total net profit is $330 to $40 million, up 150.0% and 24.1% year-on-year respectively. We gave the company 10 times PE in 23 years, and maintained a “buy” rating of 2.95 HKD.
Risk increase: (1) Economic downturn risk: risk of falling company revenue due to economic downturn in overseas Southeast Asia, the Middle East, Europe and the US; (2) Industry risk: domestic and foreign political risks faced by the live streaming, gaming, and social networking industries; risk of global localization of company products, local regulatory risks faced by the company's products going overseas; (3) Social business risk: the revenue of the company's social business products falls short of expected risks, and the risk of loss of users of old products such as Mico; the risk that the company faces in commercialization of operations and products that fall short of expectations after merging with Blued. (4) Innovative business risk: the risk that the turnover of new products falls short of expectations, and the risk of losing users of the company's old game products.