Description of the event

The company disclosed 23 H1 results. 23H1 achieved revenue of 1,753 million yuan (+10.0% year-on-year), net profit of 90 million yuan to the parent, and 113 million yuan of adjusted net profit, turning losses into profits.

Incident comments

Game business: The product cycle has arrived, and self-developed products have been launched one after another to drive revenue growth and gross profit improvement1) Benefiting from increased revenue brought by new tours such as “Sausage Party”, “Torchlight: Infinity” (domestic launch in May), and “Fire Soda” (domestic launch in June). Combined with the natural decline in sales of mature products such as “Endless Urala” and “Ragnarok M”, 23H1 online game revenue was +3.7% over the same period. Among them, “Sausage Party” recorded a record high in the number of active users and turnover in the 5 years since it was launched during the Spring Festival, demonstrating the long-term vitality of existing products. However, due to the decline in MAU and MPU after the holiday, the average number of monthly paying players in the first half of the year was -9.2% year-on-year to 1,389,000, and the share of paying players increased slightly by 0.5pct to 10.5%.

2) With the domestic launch of new self-developed games such as “Torchlight: Infinity” and “Firepower Soda”, the gross margin of the company's game business has increased significantly. 23H1 game business gross margin was +7.1 pct to 47.3% year over year.

TapTap: Demand for game marketing is picking up, and commercial potential continues to be unleashed? Due to the increase in the number of new games launched in the 23H1 Chinese market, demand from players and advertisers picked up in the first half of the year, driving 23H1's information service revenue to +29.0% year-on-year to 603 million. Or due to promotion cost control, MAU in 23H1 TapTap China was -18.6% year-on-year to 33.97 million, and MAU rebounded to 39.3 million in July. We believe that with the successive launch of key summer games and the increase in player activity, there is still potential to increase the number of TapTap users and commercialization. The penetration rate of TapTap Developer Service (TDS) has further increased. By the end of July 2023, the number of active games using TDS every day had increased to more than 2,000, and the number of players using TDS services every day had increased to over 3 million.

Cost reduction and efficiency were strongly promoted, and losses were turned into profits in the first half of the year: under the trend of industry recovery, new tours were launched one after another, increased TapTap advertising revenue, and further improvements on the cost side pushed the company to achieve profit goals ahead of schedule. Has it reached the bottom of performance? 1) The company effectively promoted the optimization and adjustment of the R&D system in 2022. The cost side improved significantly, and 23H1 continued the trend of cost reduction and efficiency. At the end of the first half of 2023, the company's R&D personnel decreased by 20.2% year-on-year to 828. The 23H1 sales expense ratio was -6.5 pct to 18.8% year over year, and the R&D expense rate was -11.1pct to 30.1% year over year. In addition, the increase in the share of high-margin information service revenue also increased 23H1's overall gross margin by 10.1 pct to 59.2%. Under the combined effects of increased gross profit and cost optimization, the company 23H1 achieved net profit of 90 million yuan and adjusted net profit of 113 million yuan, turning losses into profits.

2) The company Q2 has launched new self-developed games such as “Torchlight: Infinite” and “Firepower Soda” in China. “Torchlight: Infinite” has become the company's third-highest grossing product in 23H1; the self-developed SRPG “Sword of Suzuran” has been approved. It was launched in August in Hong Kong, Macao and Taiwan and achieved impressive performance. It is expected that Q4 will launch in mainland China; the game “Let's Go! Muffin” is expected to be launched on 23Q4-24Q1, and self-developed products have entered the launch cycle one after another.

Risk warning

1. Product version number approval, launch progress, turnover performance and user growth fall short of expected risks; 2. Industry regulatory risks.