The launch of new games and cost reduction and efficiency measures led 2023H1 to turn a year-on-year loss into a profit, maintaining a “buy” rating
In 2023H1, the company achieved operating income of 1,753 million yuan (+10.0% year-on-year) and net profit of 190 million yuan (year-on-year loss turned loss into profit, 2022H1 lost 386 million yuan). The increase in revenue in the first half of 2023 was mainly due to the increase in information service revenue for the Chinese version of TapTap and the increase in game revenue driven by the launch of new games. The increase in net profit is mainly due to: (1) an increase in company revenue and an increase in gross margin; (2) cost reduction and efficiency measures leading to a reduction in R&D costs and marketing expenses. We maintain our profit forecast for 2023-2025. We expect the company's net profit to be 2.58/355/468 million yuan, corresponding EPS of 0.5/0.7/1.0 yuan respectively, and the current stock price corresponding to PE is 29.8/21.7/16.4 times, respectively. We are optimistic about the online performance of the company's self-developed games and maintain the “buy” rating.
With the optimization of promotion strategies and the improvement of the product cycle in the game industry, the number of TapTap users is expected to continue to grow
As of June 2023, the Chinese version of TapTap MAU was 33.97 million (-18.6% year on year), mainly due to: (1) users' demand for online games may have declined year over year after the epidemic; (2) the number of new users decreased year-on-year due to reduced marketing investment. In June and July 2023, the company made several policy adjustments, so that the number of TapTap users returned to a growing trend. In July 2023, the Chinese version of TapTap MAU reached 39.3 million. We believe that the TapTap game community and distribution mechanism and “zero share” policy have unique advantages in attracting users and game vendors. With the adjustment of the company's marketing strategy and the increase in the product cycle of the game industry, the number of platform users is expected to continue to grow.
Self-developed games have been launched one after another or the closed loop between the platform and content ecosystem has been improved to drive the company's performance growth
In May and June 2023, the company's self-developed games “Torchlight: Infinite” and “Firepower Soda” were launched in China. “Torchlight: Infinity” ranked in the top three free games for a week in a row at the beginning of its launch, and reached the highest number of 19 on the bestseller list. “Fire Soda” ranked first on the free game list, and reached the highest 36 on the bestseller list.
Both games were launched in the latter part of the first half of the year, contributing little to the performance of the first half of the year, and it is expected that they will be released gradually thereafter. The self-developed game “Sword of Suzuran” was launched in Hong Kong, Macao and Taiwan in August. It is expected to be launched domestically in 2023Q4, and “Let's Go Muffin” is expected to be launched in 2023Q4 or 2024Q1. Subsequent reserve games include “Ether Restart Day” and “Heartwarming Town.” The company's self-developed product line, which has been laid out for many years, is entering a implementation period, and many products have added more commercial designs on the basis of playability. It is expected that they will achieve good commercial performance, improve the closed loop between the TapTap platform and exclusive content, and support the company's continued growth in performance.
Risk warning: TapTap user growth falls short of expectations, new game launch performance falls short of expectations, etc.