Introduction to this report:
The company's performance in the first half of the year is in line with expectations, games are growing steadily and reserve products are abundant, and education is expected to usher in a recovery in the second half of the year.
Summary:
Maintain the “increase in holdings” rating and maintain the target price of HK$22.49. The company's semi-annual performance is in line with expectations, games are growing steadily, and IP series products are abundant, and short-term pressure on education is about to recover in the second half of the year.
We maintain our profit forecast and forecast net profit of RMB 842/9.43/1120 million yuan (same below) for 2023-2025, corresponding to PE 9.14X/8.16X/6.87X, maintaining the “increase in holdings” rating.
Gross margin was clearly optimized, and net profit resumed month-on-month growth. The company's 23H1 achieved revenue of 3,681 billion yuan, -13.2% year-on-year, mainly due to pressure on education revenue in the first half of the year; achieved gross profit of 2,287 million yuan, -1.5%, gross profit margin of 62%, +7 pct, benefiting from the share of game revenue and a significant increase in gross margin; achieved net profit of 453 million yuan, -16.4%, +104.1%, net interest rate of 12.3%, +6.2 pct., game profit release and education losses narrowed month-on-month, compounded by the company's operating expenses ratio. Compared to growth.
Game revenue reached a record high, and the flagship IP, Magic Domain, performed strongly. The company 23H1 achieved game revenue of 1,920 billion yuan, +8.1% year on year, game gross profit margin of 96.8%, +1.2 pct year on year, operating profit of 1.1 billion yuan, +9% year on year, and operating profit margin reached 57.0%, +0.3 pct. Among them, mobile game revenue was 1.6 billion yuan, +8%, +7% year on year, domestic and overseas game revenue was +9% and +4%, and the flagship IP “Magic Domain” series performed strongly. The flagship IP “Magic Domain” series performed well. Linkage Revenue was boosted by +12% month-on-month, and the launch of flagship IPs and new IP reserve products in 24-25 will drive steady game growth.
IFPD has a strong leading position, entering the middle and low end markets to explore AI monetization. The company 23H1 achieved education revenue of 1.72 billion yuan, -28.6% year-on-year, education gross profit margin of 24.4%, year-on-year -0.9 pct, operating profit -249 million yuan, operating profit margin -14.5%, 0.81 pct. Revenue was pressured due to falling global IFPD market demand in the post-pandemic era. The company still maintained its leading position in five core markets. Launched ActivPanel LX in May to enter the middle and low end markets. 231H accounts for 4% of Prometheus's revenue by the end of the year. The tablet-integrated software subscription service explores AI monetization, and the spin-off and listing of overseas education is also expected to unleash growth potential.
Risk warning: changes in industry regulatory policies; increased competition in overseas IFPD markets; flagship game performance is declining; new game launch progress falls short of expectations.