Incident: The company disclosed its 2023 semi-annual report. 2023H1 net profit turned loss into profit 2023H1. The company achieved operating income of 1,121 million yuan, net profit of 41 million yuan (loss of 222 million yuan for the same period last year), adjusted net profit of 220 million yuan (loss of 51 million yuan for the same period last year), net profit and adjusted net profit both turned loss into profit.
By business, 1) the game business 23H1 achieved revenue of 1,065 million yuan, accounting for 95% of the company's revenue from 93% in the same period last year, of which core game revenue increased by more than 20%; 2) the information service business 23H1 achieved revenue of 41 million yuan; 3) the IP derivatives business (unsustainable management) 23H1 achieved revenue of 111 million yuan.
Remarkable results in cost reduction and efficiency, and steady improvement in revenue quality
The company's gross margin for 2023H1 was 45.1%, up 1.8 pct from 43.3% in the same period last year. Mainly because the company further terminated the non-core game business, divested the IP derivatives business, and continued to focus on the main business, the company's core game revenue achieved steady growth. At the same time, the company's user operations through Fanbook continued to deepen, leading to increased channel revenue, increased gross margin, and improved revenue quality. On the cost side, the company's 2023H1 sales/management/R&D expenses ratio was 10.3%/3.8%/12.6%, respectively, down 20.6 pct/2.5 pct/0.7 pct, respectively. The company's continuous cost reduction and efficiency measures achieved positive results.
Game business: Boutique games are growing steadily, and it is worth looking forward to reserving new games. The company has domestic agency rights for many overseas boutique games. Among them, “Subway Parkour” has been in operation for 10 years.
The company continuously updates the version based on user feedback from the Fanbook community, and is driving the performance growth of the basic edition of premium games through IP linkage and other methods. “Subway Surfers” launched fantasy linked versions of classic IPs such as “Ultraman” and “Detective Conan”, which were well received by users; after “Dream Garden” launched the Jiangnan Water Town ancient theme version this summer, the number of daily active users and the number of paying users both bucked the trend compared to the same period last year. Since 2019, the company has been rooted in developing its own games. Since the launch of the representative product “Honor All Stars”, various operating indicators and sales data have continued to perform excellently. Up to now, it has remained strong, and the company plans to lay out a global distribution strategy.
New tours developed by the company in 2023 included “Calapiccio,” “Ni no Kuni: Interlaced Worlds,” and “Operation Delta.” As the company's first two-dimensional competitive shooter game, “Carapicchu” quickly attracted a large number of two-dimensional users and shooter game enthusiasts with its unique “stringed” gameplay and beautiful character design. In the two recent public tests, the game received millions of new additions, and important indicators such as average daily online time and retention rate exceeded expectations; currently, the PC version of the game has officially entered the undeleted testing stage, and there will also be a mobile game version and global distribution plans in the future. “Ni No Kuni: Interlaced Worlds” is a Ghibli style otherworldly fantasy adventure RPG mobile game. Currently, the product is quite complete, and it is expected that paid testing will be carried out in the third quarter of this year. “Operation Delta” is a multi-player first-person tactical shooter based on special operators/squads. It will be released at an optional date in the future. As self-developed games continue to be delivered, it is expected to drive the company's long-term performance growth.
Fanbook: The scale of the community is growing rapidly. It has been three years since B+C commercialization was developed and polished independently by the company. It has been three years since Fanbook was independently developed and polished by the company. It is a channel-based community user management tool that can effectively solve community operation problems. 2023H1, Fanbook's data performed excellently: the transaction volume exceeded 100 million yuan, the number of new communities added exceeded 2,000 (the number of communities added in July-August exceeded 4,000), the number of outstanding creators exceeded 3,000, the cumulative number of impressions of creative works on various platforms exceeded 1 billion times, and 230 creators with a million exposure levels. The Fanbook community is growing in size. Currently, Fanbook has 10 communities of 1 million people, 22 communities of 100,000 people, and 100 communities of 10,000 people. At the same time, Fanbook has implemented generative AI capabilities such as Wenshengtu, Tushengtu, Wensheng Video, etc., and has used this to host many AI painting activities linked to games such as “Subway Parkour” and “Dream Garden.” The total number of AI paintings generated has exceeded 1 million.
In the future, Fanbook is expected to be commercialized on the B+C side. On the B-side, Fanbook can increase the certainty of investment in game production and research, obtain incremental user dividends, and support long-term game lifecycle operations, thereby forming efficient collaboration with the company's own game business; on the C-side, Fanbook's embedded AIGC technology is expected to provide convenient and safe AIGC tools and services to many individual users.
Profit forecasting
We expect the company's operating income for 2023-2025 to be 28.08/38.30/4.579 billion yuan, up 2.72%/36.39%/19.55%; net profit attributable to shareholders of the parent company is 196/495/782 million, up 107.86%/152.66%/58.04%; EPS is 0.12/0.31/0.50, respectively, at the closing price of September 7, 2023, corresponding PE 24.98/9.89/6.26 double. Considering that the company will launch many new gaming products with potential for popularity at home and abroad in the future, and that Fanbook maintains a “buy” rating as a C-side commercialization space brought about by the game community driving the accelerated growth of the company's game business and AIGC's capabilities.
Risk warning
Risk of industry policy changes; risk of game version application; risk of core talent loss; launch performance of new games falls short of expectations; new business development falls short of expectations.