Event: The company released financial results for the third quarter of 2023 on October 29, 2023. In the first three quarters of 2023, the company achieved revenue of 1,03 billion yuan, an increase of 131.47%; net profit to mother was 166 million yuan, an increase of 1002.44%; after deducting non-net profit of 163 million yuan, an increase of 741.15% year on year. Among them, the company's overall gross profit margin was 64.33%, the year-on-year 33.87pct, and the overall net profit margin was 12.73%, +15.99pcts year-on-year.
Comment:
The single 23Q3 company achieved revenue of 459 million yuan, an increase of 109.97% year on year; net profit to mother was 66.2295 million yuan, up 245.47% year on year, after deducting non-net profit of 64,181 million yuan, an increase of 240.70% year on year. Among them, the company's overall gross profit margin was 65.55%, +54.39pct year on year, and the overall net profit margin was 14.44%, and +35.28pct year on year. Major companies' game distribution business and self-developed game share revenue have all increased significantly. The company's sales expenses in Q3 in '23 were 163 million yuan, up 460.57% year on year, and the sales expenses ratio was 35.56%, +22.24pct year on year; mainly due to the increase in costs associated with the company's revenue growth in the game sector. Management expenses were 37.3738 million yuan, up 95.25% year on year, and management expenses ratio was 8.15%, -0.61 pct year on year; mainly due to the increase in daily expenses such as remuneration and rent for corresponding personnel in game companies. R&D expenses were 245.26,500 yuan, up 10.15% year on year, R&D cost rate 5.35%, -7.15 pct year on year.
The Q3 performance was slightly lower than expected, due to increased purchases of new products on the distribution side combined with reduced prices in the old business inventory due to depreciation. The performance fell short of expectations mainly due to a drop in inventory prices in the daily chemical business in Q3; the performance of new games on the distribution side exceeded expectations, and investment in purchasing volume was increased in September, and profits are expected to be released starting in Q4.
New games that have already been launched have performed brilliantly. Watch the pace of launch of major savings products in 2024. “Battle for Shacheng” has continued to rise in sales since its launch, and its performance has exceeded expectations. It is expected to contribute stable profits to Q4 and next year's results. The new game “Anchors Arrives” was launched on August 10. On the first day, it ranked 10th in the free iOS version, boosting Q3 performance. Q4 Self-developed new projects such as PKRPG, WeChat Mini Program, and SLG are worth looking forward to. The PV for the Shinigami IP comic game “Realm: Sword of the Dead” in collaboration with ByteDance was first revealed on July 4. As of October 31, the number of reservations on the official website had reached 1.54 million. The company expects to launch overseas in Q1 or April '24.
Investment advice: The company continues to increase its game business. Self-developed products have excellent performance and abundant reserves, the distribution side is expanding steadily, the applet investment and recycling is imminent, and the dual line development has been very effective. Q4 Reserve products have been launched one after another, and distributor-side profits are gradually released, which is expected to contribute to the increase. We expect net profit attributable to mother for 23-25 to be $329/6.65/809 million, respectively, with a corresponding valuation of 19.3/9.6/7.9xPE, maintaining a “buy” rating.
Risk factors: Core game performance falls short of expectations, new game development progress and launch progress falls short of expectations, cross-market comparable company risk, industry policy risk, etc.