Description of the event
The company released its 2023 mid-year report: the company achieved revenue of 1.148 billion yuan (+30.32%) in 23Q2, net profit of 209 million yuan (+111.87% year on year), net profit of 209 million yuan (YoY +111.87%), after deducting non-net profit of 205 million yuan (+108.14% year on year).
Incident comments
Game turnover combined with optimization of marketing expenses, sharp increase in game business profits, early R&D investment and marketing promotion gradually entered the performance realization period: in 2022, the company increased R&D and advertising efforts in the game sector. Influenced by factors such as game product iteration and early advertising, the company maintained strong performance with key products such as “Fishing Bombing”, “Finger Tip Fishing”, and “Yao Ji Fishing 3D Edition”. The game achieved revenue of 706 million dollars in the first half of the year (+21% year on year). Early R&D and promotion investments enter the payback period to drive cost rate optimization. 23Q2 The company's sales expense ratio was -6.0 pct to 9.0% year on year (+5.1 pct), and the R&D expense ratio was -1.7 pct to 4.8% year on year. Among them, Chengqi Technology achieved net profit of 330 million yuan in the first half of the year (+294% YoY).
The performance of the poker and marketing business was steady, contributing to the increase in performance. In the first half of the year, the poker business revenue fell 9% to 515 million, and gross margin increased by 3.9 pct to 26%. Wholly owned subsidiaries Qidong Yaoji and Wanshengda Poker achieved a total profit of 42 million yuan, an increase of 25% over the previous year. It is expected that after the company further expands production capacity, it is expected to resolve the company's production capacity bottlenecks, further expand its market share, and support the company's future business development.
The marketing business continued its recovery trend. In the first half of the year, the marketing business achieved revenue of 1.102 billion dollars (+55% compared to the previous year), gross margin increased slightly by 0.2 pct to 4.33%, and the wholly-owned subsidiary Lu Ming Technology achieved a net profit of 21.55 million yuan (+109% year on year).
The company's business has both stability and growth, and the star card and IP card business are growing rapidly 1) The company's traditional business is both offensive and defensive, and has stability and growth: the company's poker business channel advantages are obvious, it has strong price control capabilities, leading market share, and is expected to achieve a sharp rise in volume and price in the future; the digital marketing sector cooperates with leading media platforms such as ByteDance, and continues to benefit from post-epidemic recovery. The company's leisure game category still has great resilience in the future; the company's leisure game category has outstanding performance, and is expected to continue to release profits in the future.
2) The company strategically lays out the card market and is expected to use the advantages and ecology of its original business to promote the rapid growth of the star card and IP card business. In the first half of the year, Lu Zhouzhuo (parent company of the card trading and distribution platform Card Hobby) brought the company more than 5 million in investment income (loss in the same period in '22). In addition, other joint ventures, including Yao Ji Chaopin (which sells cards), brought the company more than 4.7 million in investment income in the first half of the year. It is expected that GMV of star cards will continue to increase in '23, and cards are also expected to expand to other IPs.
Investment advice: We expect the company's net profit to be 750 million and 900 million dollars respectively from 2023-2024, corresponding PE 16.2 and 13.5 times, respectively, and maintain the “buy” rating.
Risk warning
1. Product version approval, launch progress and production performance fall short of expected risks; 2. Industry regulatory risks.