Incident: Revenue and profit both picked up in the first half of the year. The company released its 23H1 financial report, achieving revenue of 3.7 billion yuan, a year-on-year decrease of 13%, and a year-on-year increase of 2%; achieved net profit of 5.0 billion yuan, a year-on-year decrease of 12%, and a year-on-year increase of 86%; the revenue and profit side all picked up compared to 22H2.
The game business is clearly picking up, flagship IPs are growing steadily, and many reserves have been added to the pipeline. The game business achieved revenue of 1.9 billion yuan in the first half of the year, up 8% year on year and 16% month on month; achieved segment operating profit of 1.09 billion yuan, up 9% year on year and 34% month on month. Both revenue and profit sides recovered significantly. The flagship Magic Domain performed steadily. Mobile game revenue increased 10% year over year and 22% month on month in the first half of the year; mobile game revenue increased 10% year on year and 11% month on month. Furthermore, the MAU and paid users of the “Magic Domain Interactive Mobile Game” increased by 32%/16%, respectively, from month to month, and the user circle and activity level further increased. In terms of content updates, on the one hand, the company updated 4 videos in the first half of the year, and on the other hand, launched “Magic Domain Mobile Game 2” in March '23. Looking forward to the future, the company stocks products such as “Magic Domain Reset Edition” and “Magic Domain Mobile Game 2 Overseas Edition” in Pipeline, and is expected to further prosper IP vitality by launching it in '24. Driven by collaboration in the first half of the year, “Hero Blade” IP revenue increased 12% month-on-month and returned to a growth trajectory, and the IP sequel “Hero Blade 2.0” is also under development.
The education business is under pressure in the short term after demand peaks, entering the middle and low end markets, and is expected to launch AI-based subscription services.
The education business achieved revenue of 1.7 billion yuan in the first half of the year, down 29% from the previous year and 11% from the previous year. This was mainly due to the decline in demand for interactive tablets during the pandemic, and during the demand outbreak in the past two years, the company's shipment growth rate was much higher than the market. In addition to fluctuations in market demand, the company launched ActivPanel LX, a mid-range interactive tablet product, in May 23, and officially entered the low-end market (the company's past products were positioned in the middle and high-end, and the price of LX was 31% lower than the entry-level model of the previous generation ActivPanel 7). Due to the late launch, ActivPanel LX's revenue was only 4% of Prometheus's in the first half of the year, and we think its revenue is expected to be further released in the second half of the year. On the other hand, Prometheus's adjusted gross margin increased to 28.4%, mainly due to the increase in the share of ActivPanel 9, which sold more, in 2023 after ActivPanel 7's inventory consumption in 2022 — the average price of the 23H1 Prometheus interactive tablet was 2,267 dollars, an increase of 6% over the previous month. Furthermore, the company plans to launch the first software subscription service combined with the Prometheus tablet by the end of the year, integrate AI capabilities, and achieve profit through a subscription system.
Profit forecasts and investment recommendations. Considering the business situation in the first half of the year, we slightly adjusted the company's revenue forecast for 2023-2025 to 76/87/93 billion yuan, a year-on-year (decline) increase of -4%/14%/7%; adjusted net profit forecast to 9.0/10.3/1.12 billion yuan, an increase of 8%/15%/8% over the previous year. Maintain a “buy” rating for the company.
Risk warning: risk of macroeconomic fluctuations; risk of exchange rate fluctuations; risk of product launch progress falling short of expectations.