Giant Network is a leading comprehensive Internet game enterprise in China, which started with the game "journey" in the early stage. at present, it focuses on the game, pursues the business model of the integration of research and transportation, and adheres to the boutique strategy. The company ushered in a growth inflection point in the second quarter of 2023 to achieve a substantial increase in profits, and the first interim dividend since listing demonstrated the management's confidence in long-term development. The excellent performance of the new tour "original Journey" and "Space Action" has greatly driven the increase since the launch of the new tour "original Journey" and "Space Action". The follow-up "original Journey" plans to launch the official version in the fourth quarter and Mini Program version at the right time, "Space Action" will actively expand overseas markets to land in North America and will soon launch AI gameplay, the company develops its own cooperation and actively uses AI technology to enable games, and plans to explore the application of AI technology in the game in three aspects of "Space Action" from AI playing, AI speech assistance, and AI plot reasoning.
"Journey" started to focus on games, the achievement of the country's leading research and transportation integrated Internet game enterprises. Founded in 2004, the company started with the game "Journey". After listing on the New York Stock Exchange in 2007, it delisted from the US stock market in 2014, and then completed the A-share listing of backdoor Century Cruise in 2016.
The company focuses on games, and the revenue of game business accounts for more than 99%. The company pursues the business model of integrated research and transportation and adheres to the boutique strategy. It is a leading comprehensive Internet game enterprise integrating R & D, distribution and operation.
Profits rose sharply in the second quarter, and the first interim dividend demonstrated management confidence. The company ushered in a turning point in profit growth in the second quarter of 2023. In the first half of the year, revenue reached 1.443 billion yuan, an increase of 35.68% over the same period last year. The total return net profit was 664 million yuan, an increase of 32.95% over the same period last year. The non-return profit was 691 million yuan, an increase of 16.92% over the same period last year. In the second quarter alone, the operating income reached 936 million, an increase of 93.58% over the same period last year, an increase of 84.41% over the previous year, the net profit of returning to the mother reached 419 million yuan, an increase of 83.57% over the same period last year, and the non-return profit reached 429 million yuan, an increase of 78.22% over the same period last year. In addition, the company pays an interim dividend for the first time since its listing, with a dividend amount of about 247 million, indicating the company's healthy cash flow and management's confidence in the company's long-term development.
The gross profit margin increased slightly and the investment in advertising increased. In the first half of 2023, the company's gross profit margin rose 1.96 pct from a year earlier to 89.49%. In the same period, the company's sales expenses increased by 270.94% to 557 million yuan, mainly due to the increase in advertising expenses after the official launch of a number of new products; the company's management expenses decreased by 8.76% to 92 million yuan, mainly due to the decline in personnel costs; the company's financial expenses decreased by 57.72%, mainly due to the decline in interest income.
The "original journey" has driven a big increase in performance, and the ranking of "space operations" has risen steadily. The annual flagship new product "the original Journey" performed very well after its public test on March 24, reaching the top 20 of the iOS free list and best-seller list on the first day, with more than 300 million in the first month and more than 1 billion in total. The company plans to launch "original Journey-official version" in the fourth quarter and Mini Program version of "original Journey" in due course. Another new tour, "Space Action", added 28 million users and DAU exceeded 2.5 million after its public test on July 13. After its launch, the product continued to rise in the best-selling list of domestic iOS family party games and is now stable in the range of 30-40.
The company's "Journey" IP's new "King's Journey" H5 game project is also making steady progress.
"Super Sus" is about to launch in North America to set up a new brand to expand overseas markets. As of July 31, the total number of overseas registered users of "SuperSus" has exceeded 71 million, and 23H2 is expected to open a public trial in the North American market. The company established its Quanxin sub-brand ZTimes for overseas markets in March 2023. It has two products under research and has a R & D team of more than 100 people. The company's first national war mobile game for the global market, "the throne without owner", was officially unveiled at 2023 Chinajoy, with a view to promoting the company's superior national war MMO category to the world.
"Space Action" is proposed to play a new AI, self-research and cooperation and actively use AI technology to empower games. The company has set up an AI innovation laboratory to promote the landing of AIGC tools in various business scenarios, and work with a number of major language models to explore "game + AI" solutions. "Space Action" plans to explore the application of AI technology in the game from three aspects: AI playing, AI speech assistance, and AI plot reasoning.
For the first time, coverage gives highly recommended investment ratings. Taking into account the company's recent high growth, new products and overseas business to build new growth points, as well as higher gross profit margin and lower management expense rate, we expect 2023x2024max to achieve a net profit of RMB 1.603 billion in 2025, EPS of RMB 0.65pm in 2023-2025, and PE of RMB 18.6x1614.5x for the first time coverage is highly recommended.
Risk hint: the risk of industry policy change, the risk of market competition, and the risk that the progress of the AI enabling game is not as expected.