Incidents:
1) On September 7, the company received an increase of 164,800 shares at an average price of HK$3.40 per share at an average price of HK$3.40 per share, involving approximately HK$560,200 on the market. After the increase in holdings, Chen Xiangyu's latest number of shares held was 260 million shares, and the shareholding ratio increased from 16.47% to 16.48%.
2) The company announced the 2023 interim results. 2023H1 achieved revenue of 1,121 million yuan, a year-on-year decrease of 18.8%; adjusted net profit was 220 million yuan, turning a loss into a profit from the previous year.
Comment:
1. Focus on core business, reduce costs and increase efficiency significantly. 2023H1's total revenue decreased by 18.8% compared to the same period last year, mainly due to the company terminating its non-core gaming business and divesting its IP derivatives business, and continuing to focus on its main business. Among them, revenue from the IP derivatives business fell from $41 million in the same period in 2022 to $111 million; game revenue fell from $1,284 million to $1,065 million. On the profit side, 2023H1's adjusted net profit turned losses year-on-year and gross margin increased, mainly due to increased revenue from channels brought by Fanbook and a reduction in management costs and operating costs due to continuous cost reduction and efficiency measures.
2. Premium games are growing steadily, and new games are expected to bring in additional volume. 1) In terms of core games, in the first half of 2023, the company's share of core game revenue further increased. “Subway Surfers” maintained steady growth; “Dream Garden” and “Dream Home” launched high-quality content such as “Peach Xianrui” and “Cat Manor” in the first half of the year, and the number of daily active users and paying users broke new highs; “Honor All Stars” still performed strongly. Combined with the Fanbook community, the online time spent by users inside and outside of the game increased significantly. 2) In terms of new games, the company's self-developed product “Carapiccio” received one million new additions in the public test, with an average daily online time and retention rate exceeding expectations. It has now officially entered the undeleted testing stage; “Ni no Kuni: Interlaced Worlds”, which was jointly developed with Tencent, obtained a version number in December 2022, and is expected to be tested for a fee in the third quarter of this year; “Operation Delta” has obtained a version number in July 2023. It is expected to be released exclusively by Tencent in mainland China and will be launched at an optional schedule in the future.
3. Fanbook embraces AIGC, and the user community helps product growth. Fanbook is a channel-based community user management tool independently developed by the company that can effectively solve community operation problems. Currently, the company is testing the implementation of more generative AI capabilities on Fanbook. The main scenarios include improving community operation efficiency and assisted generation of user content, which helps improve operational efficiency, player activity, and community content richness.
4. Investment suggestions: The company's revenue for 23-25 years is estimated to be 2,860/35.95/4.201 billion yuan respectively, and net profit to the parent is 211/426/552 million yuan respectively. Corresponding to the current stock price, PE is 23.33X/11.53X/8.89X respectively. Give it a “Recommended” rating.
5. Risk warning: “Carapicchu” performance fell short of expectations, old game turnover declined, Fanbook performance fell short of expectations