Description of the event

Yao Ji Technology disclosed 23Q3 results. In 23Q3, the company achieved revenue of 1,225 million yuan (+33.90% yoy), net profit of 150 million yuan (+47.56% yoy), net profit of 150 million yuan (+47.56% yoy), and deducted non-net profit of 127 million yuan (+28.36% yoy).

Incident comments

Game flow may still be relatively stable, and the marketing sector may contribute part of the increase in revenue 1) Early R&D investment and marketing promotion have gradually entered the performance redemption period. Revenue from key products such as Q3 “Fidget Fishing” and “Fishing in the Sky” is expected to continue to grow at a high year-on-year rate, with growth under pressure but overall stability; 2) Or due to the high level of prosperity in the summer game buying market, the company's marketing sector is also expected to achieve good revenue performance in Q3.

Or due to a decline in Q3 gross margin due to revenue structure adjustments, all sectors achieved performance growth in the first three quarters 1) It is expected that due to the pressure on the Q3 growth rate of game flow and the growth of the marketing sector, the share of Q3 companies' low gross margin marketing business may have increased, causing the company's Q3 gross margin to fall 10pct to 30.3% month-on-month; 2) The company's game sector has optimized its marketing strategy and adopted a steady and targeted marketing strategy. Early R&D and promotion investment entered the payback period to drive continuous optimization of the cost ratio. Q3 sales expenses -28% /-33% month-on-month to $0.7 billion, and the sales expense ratio also fell to 5.7%;

3) In the first three quarters, the company achieved net profit of 558 million yuan (+90.8% year-on-year) and net non-net profit of 523 million yuan (+86.3% year-on-year), and all major industries achieved performance growth. By business, business operations in the poker sector were stable and benefited from rising unit prices. Profit in the first three quarters increased compared to the same period last year; the results of early investment in the game sector were evident, achieving both revenue and profit growth in the first three quarters; and the digital marketing sector business grew steadily, achieving both revenue and profit growth in the first three quarters.

The main business is expected to continue to be steady, and the star card and IP card business is expected to grow rapidly 1) After the company further expands its poker production capacity, it is expected that the company will resolve the bottleneck in the company's production capacity and further expand its market share; 2) The company has outstanding performance in the casual game category and has some competitiveness when going overseas. Early R&D and promotion investment is expected to continue to release profits in the future; 3) the digital marketing sector cooperates with leading media platforms such as ByteDance, and continues to benefit from industry recovery, and there will still be growth elasticity in the future.

2) In the first half of the year, Card Hobby's parent company brought the company more than 5 million in investment income (loss in the same period in '22). In addition, other joint ventures, including Yao Ji Chaopin, brought the company more than 4.7 million in investment income in the first half of the year. It is expected that the star card GMV will continue to grow at a high level in '23, and the card is also expected to expand to other IPs.

Profit forecast and investment advice: We expect the company's net profit to return to the mother in 2023/2024 to be 7100,000/840 million respectively, corresponding to PE 13.9/11.7 times, maintaining the buying rating.

Risk warning

1. Product version approval, launch progress and production performance fall short of expected risks; 2. Industry regulatory risks.