Incident: 2023H1 achieved operating income of 1,753 million yuan, a year-on-year increase of 9.98%, net profit of 90,194 million yuan, and a loss of 386 million yuan for the same period last year. The company's performance turned a loss into a profit, falling into the range previously predicted.
Game operation: Self-developed new games have been launched one after another, and follow the launch performance of “Sword of Suzuran”. 2023H1's game business achieved revenue of 1150 million yuan (yoy+2.09%). The revenue growth was mainly due to the year-on-year increase in revenue from “Sausage Party” and the increase in the contribution of the new tours “Torchlight: Infinity” and “Fire Soda”, which was partly offset by a decline in revenue from “Endless Urala” and several paid games; gross margin was 47.27% (yoy+7.13pct), mainly due to the increase in revenue share of self-developed products with high gross margins. Looking ahead, the company's self-developed mobile game “Sword of Suzuran” (version number already available) was launched in Hong Kong, Macao and Taiwan in August 2023. It is expected to launch in mainland and overseas markets in 2023Q4. The new tour “Let's Go, Muffin” is expected to launch in 2023Q4-2024Q1, and “Ether? “Restart Day” and “Heart Town” are progressing steadily. We look forward to the gradual implementation of the company's self-developed products and contribute to increased performance.
TapTap: Industry demand drives revenue growth, and marketing strategies put pressure on MAU growth. 2023H1's information service business achieved revenue of 603 million yuan (yoy +28.96%). Revenue growth was mainly due to increased demand for new game marketing in the industry and increased TapTap advertising system and customer coverage; gross margin was 81.85% (yoy+11.11pct), mainly due to reduced TapTap MAU and improved Internet technology, and reduced bandwidth and server hosting fees. 2023H1 TapTap China's MAU was 33.97 million, yoy -18.60%, international MAU was 7.14 million, yoy -20.48%. The decline was mainly due to active reduction in marketing activities to control costs. As a result, the number of new users dropped year on year, and corresponding sales expenses fell 18.16% year on year. After the company adjusted its marketing strategy, TapTap China's MAU had returned to 39.3 million in July 2023. Looking forward to the future, we believe TapTap will continue to benefit from increased supply of new games in the game industry, advertising demand will drive TapTap revenue growth. At the same time, the company will pay more attention to the quality of TapTap users, and maintain a steady pace in marketing and delivery.
The improvement in the revenue structure has increased gross profit margin, and has achieved remarkable results in reducing costs and increasing efficiency. The net profit of the 2023H1 company turned a loss into a profit, mainly due to: 1) the increase in gross margin of the two main businesses, while the share of information service revenue with higher gross margin increased by 5.07 pct to 34.41%; 2) strict control of marketing expenses, sales expenses rate of 18.85% (yoy-6.48pct), 3) optimization of research projects and personnel. The number of R&D personnel decreased from 1387 at the end of 2023H1 to 1143 at the end of 2023H1. The corresponding R&D expenses rate dropped 11.07pct to 30.11%.
Profit forecast and investment rating: The company's cost reduction and efficiency are progressing smoothly. We have raised our previous profit forecast. We expect 2023-2025 EPS to be 0.39/0.65/0.92 yuan respectively (previously 0.20/0.55/0.94 yuan), corresponding to the current stock price PE 41/25/17 times, respectively. We are optimistic that the company's self-developed products will continue to be realized, and it is expected that TapTap's advertising revenue growth potential will continue to be verified and the “buy” rating will be maintained.
Risk warning: New travel performance falls short of expectations, TapTap commercialization falls short of expectations, industry regulatory risks