Event: On October 25, 2023, the company released its three-quarter report for 2023. The first three quarters achieved net profit of 692 million yuan, a year-on-year increase of 92.17%, net profit of 605 million yuan, a year-on-year increase of 19.52%; Q3 achieved revenue of 599 million yuan in a single quarter, a year-on-year decrease of 60.18%, net profit of 52.71% year-on-year, and net profit of 52.71% year-on-year after deduction of 111 million yuan.

Overall revenue was in line with expectations. Intentional contraction of social services and optimization of the business structure put some pressure on the decline in revenue, and the overall performance of gaming and IDC businesses was steady.

Its subsidiary, Wingman Network, is actively seeking breakthroughs and innovations. It intentionally shrinks online social services and optimizes and adjusts the business structure, leading to a year-on-year decline in revenue. In '22, the online social networking business was the most important source of revenue, with a revenue contribution of 2,582 billion yuan, accounting for close to 50%. Since '23, the company has intended to shrink the online social networking business, and its contribution to revenue was close to zero by the second half of the year. The contraction of the online social networking business had a great impact on revenue, while the overall performance of leisure and board games was steady, and overall profitability improved. The company continues to improve the layout of the digital technology industry. In terms of IDC business, the Hangzhou Fuyang IDC Center maintained a good profit contribution, and the second phase of infrastructure construction of the Beijing Sijiqing IDC Center was completed. A total of about 10,000 sets of cabinets were in good operation and were powered up one after another. The 2,500 units of the Hangzhou Dajiangdong Fuqi Cloud Data Center have entered an orderly stage of progress. It has also signed two cloud computing power contract projects for the Mu Fuxi Chunyun Domestic GPU North China Core Computing Node Project and the Huazhu Fuchun Cloud Computing Cluster Project.

Non-recurring losses caused by changes in the fair value of transactional financial assets led to a sharp decline in net profit attributable to the parent, and investment income of owned joint ventures also declined.

According to the company's 2023 three-quarter report, the company achieved non-recurring profit and loss in the third quarter of the year - 51.66 million yuan, mainly due to changes in the fair value of the transactional financial assets held - 74.3 million yuan. According to the 2022 annual report, the transactional financial assets held by the company were three stocks: Pingzhi Information, Century Huatong, and Huashu Media. At the same time, the investment income brought to the company by Park Hua-hui, a joint venture owned by the company's new investment in Shandong Haijian's listing, also declined during the reporting period. Investment income for the first three quarters was 193 million yuan, and investment income for the first half of the year was -2,227,800 yuan. Of investment income, investment income in joint ventures and joint ventures for the first three quarters was 165 million yuan, 175 million yuan in the first half of the year. The investment income in the third quarter was -126.072 million yuan, which did not include the fair value of transactional financial assets Changes.

Expand the digital cultural tourism and digital governance sectors, and diversify the digital economy.

Digital intelligence sector: Integrating the technical capabilities of companies such as Hangzhou Urban Brain, Communication Brain, and Zhanqi Network, Urban Brain continues to promote smart cities, digital government business, and has successfully replicated the “Zhejiang experience” to many urban markets outside the province; Communications Brain teamed up with Zhejiang Daily Group and Zhejiang Radio and Television to launch the Tianmu Blue Cloud System. The “Big Communication Model” has made phased progress in intelligent content creation and private domain just questions and answers; Zhanqi Network has participated deeply in the Asian Games sports display business.

Profit forecast and investment recommendations: The company's net profit from 2023-2025 is estimated to be 847, 9.54, and 1,047 billion yuan respectively, with corresponding valuations of 25.2, 23.2, and 21.4 times, respectively, maintaining the “highly recommended” rating.

Risk warning: risk of board game policy regulation and risk of unsuccessful version distribution, risk of failure to release version, risk of big data trading center construction not progressing as expected, risk of increased IDC business competition, risk of new business development falling short of expectations