Introduction to this report:
The company's performance for the first half of the year was in line with expectations, reducing costs and increasing efficiency, and turning losses into profits. Gaming and TapTap are about to fully recover.
Summary:
Maintain the “increase in holdings” rating and update the target price of HK$26.99. The company's semi-annual performance is in line with expectations. It is determined to reduce costs and increase efficiency to drive losses into profits. TapTap and gaming are expected to fully recover in the second half of the year.
Taking into account the launch performance of the new tour, the recovery of TapTap users, and the intensity of cost control, we adjusted our profit forecast. The adjusted net profit for 2023-2025 was 275/4.56/605 million yuan (previous value was 0.54/553/889 million yuan, same below), corresponding to PE 28X/17X/13X.
Based on the segment valuation method, the target price was updated at HK$26.99 to maintain the “increase in holdings” rating.
Gross margin has been significantly optimized, and losses have been turned into profits in half a year. The company's 23H1 achieved revenue of 1,753 billion yuan, +10.0% year on year; gross profit margin of 59%, +10pct year on year, +2pct; gross margin for information services and games increased; realized net profit of 103 million yuan, net interest rate 5.86%, adjusted net profit of 130 million yuan, adjusted net profit margin of 7.40%, +2,827 pct over the previous year, +16.19 pct. The company turned loss into profit in the first half of the year.
TapTap users have declined, and there has been a sharp increase in commercialized and efficient information services. On the TapTap side, 23h1TapTap has a domestic MAU of 33.97 million people, -18.6% year on year. Marketing investment was adjusted to short-term user pressure. The recovery momentum has now reached 39.3 million in July; 23H1 TapTap's international MAU has 7.1 million people, -20.5% year-on-year. The international version has declined due to popular games and marketing investment, focusing on key markets to polish the user community. 23H1 achieved information service revenue of 603 million yuan, +29.0% year-on-year, and a gross profit margin of 81.90% year-on-year, +11.20 pct. The recovery in industry supply and increased commercial efficiency led to a high increase in revenue, and a significant increase in gross margin under optimized bandwidth costs.
The game is stable and new games have been launched one after another, and a full recovery can be expected in the second half of the year. The company 23H1 achieved game revenue of 1150 million yuan, +2.09%, gross profit margin of 47.30% year on year, +7.20 pct year on year, increasing the share of self-research and development, and improved gross margin; among them, online games, paid games, and other revenue were 1,080, 64.54, and 521 million yuan respectively. There were 20 and 29 types of online games and paid games at the end of the period. The flagship “Sausage Party” had a new high number of active users and turnover during the Spring Festival. “Torchlight: Infinite” and “T3 Arena (T3 Arena)” did not perform well at the end of Q2. Suzuran Abundant reserves such as “Sword” and “Let's Go Muffin” will soon be launched, and game revenue is expected to recover at an accelerated pace in the second half of the year.
Risk warning: Industry regulation is becoming stricter; the launch of reserve products has been delayed; cost control has fallen short of expectations.