Incident: The company released its 2023 semi-annual report. 23H1 achieved revenue of 2.35 billion yuan, yoy +23.6%; net profit of 4.1 billion yuan, yoy +114%; net profit of non-return net profit of 4.0 million yuan, yoy +118%.
Looking at a single quarter, 23Q2 achieved revenue of 1.16 billion yuan, yoy +30.3%, qoq -2.5%; net profit of 210 million yuan, yoy +112%, qoq +5.6%; net profit after deducting net profit of 210 million yuan, yoy +108%, qoq +7.4%.
The game and digital marketing sector led to revenue growth. Sales expenses were well controlled in the first half of the year. The company's revenue in the first half of the year increased 23.6% year on year, mainly driven by growth in the game and digital marketing business. Early launch results of the game sector business were evident, and market feedback on version updates was good. 23H1 game revenue increased 21% year on year to 7.1 billion yuan; revenue increased 55% year on year to 1.1 billion yuan due to increased digital marketing business volume. 23H1 poker revenue fell 9% year over year to $5.2 billion.
On the cost side, the 23H1 sales expense ratio was 6.4%, yoy-11pct; the management expense rate was 5.2%, the same as the previous year; and the R&D expense rate was 5.0%, yoy-1pct. The 23Q2 sales expense ratio is 9.0%, yoy-6pct, qoq+5pct; management expense ratio is 5.4%, yoy-0.3 pct, qoq+0.5 pct; R&D expense ratio is 4.8%, yoy-1.7 pct, qoq-0.5 pct. Overall sales expenses were well controlled in the first half of the year, mainly due to optimized marketing strategies in the game sector.
Gross margin declined slightly due to changes in the revenue structure, while sector profitability increased. In the first half of the year, the company's overall gross margin was 37.2%, yoy-1.2pct. We determined that this was mainly due to an increase in the share of relatively low gross margin digital marketing business in the revenue structure (23H1 accounted for 46.98%, yoy+9.45pct).
By business, 1) The gross margin of the 23H1 playing card business increased by 3.9 pct to 26% year-on-year, and the company occupies a large market share in the domestic poker industry. We think it is expected that based on the company's advantages in online and offline channel collaboration, we will further enhance the overall strength of the product and achieve an increase in profitability. 2) The gross margin of the 23H1 game business was 95.6%, yoy-0.5pct. Thanks to the company's continuous changes in game products to improve user experience and early marketing promotion and marketing, the net profit margin of 23H1, a major gaming subsidiary, increased by 35pct over the same period last year to 51%. 3) 23H1 digital marketing business gross margin increased by 0.2 pct to 4.3% year-on-year.
Investment suggestions: Considering the steady development of the company's main business, the profitability of the main business segments has increased, and while actively exploring new businesses is expected to gradually release performance, we raised the company's net profit from 2023-2025 to 754/836/929 million yuan (previous value was 707/833/928 million yuan), a year-on-year increase of 116%/10.9%/11.0%. Corresponding to the closing price of September 4, 2023E-2025E PE was 16/15/13 times, respectively. Maintain a “buy” rating.
Risk warning: policy supervision risk; economic downturn, user consumption falling short of expectations; risk of platform-side cooperation policy change; marketing development falling short of expectations; core business cost risk; multi-field layout management risk.