Incident: Yao Ji Technology released its 2023 three-quarter report. During the reporting period, the company achieved total operating income of 3,571 billion yuan, an increase of 26.94% over the previous year, net profit of 558 million yuan, an increase of 90.81% over the previous year, and net profit after deduction of 523 million yuan, an increase of 86.33% over the previous year. Net operating cash flow for the first three quarters of 2023 was 393 million, up 20.92% year on year.
Comment: Increased digital marketing business volume drives revenue growth
1) 2023Q3 The company achieved revenue of 1,225 million dollars in a single quarter, an increase of 33.9% over the previous year, setting a new high in the company's single-Q revenue. The main increase is expected to come from the increase in business volume in the digital marketing sector and the stable performance of the gaming sector.
2) The gross margin level declined due to an increase in business volume in the digital marketing sector with low gross profit. The company's operating costs for the first three quarters of 2023 were 2,328 million dollars, up 34.87% year on year. The operating cost for the Q3 quarter was 854 million, a significant increase, resulting in a gross margin of 30.3% in the Q3 single quarter, down 10 percentage points from the Q2 quarter.
3) The game maintains relatively stable operation. The games operated by the company are mainly fishing products. This category has grown significantly this year. The company's products such as “Fishing for the Sky” and “Fingertip Fishing” all maintained relatively stable performance and had a long life cycle.
Among them, “Fishing for the Sky” was launched in 2019, and “Fingertip Fishing” was launched in 2020. The two products ranked 130 and 121 in the iOS game bestseller list, respectively (data as of November 3, 2023), with a stable audience.
Sales expenses are well controlled: The company's sales expenses for the first three quarters of 2023 were 220 million yuan, a year-on-year decrease of 48.07%, mainly due to the game sector's optimization of marketing strategies, which led to a marked decrease in overall expenses.
Profit forecast and valuation: The company's revenue for 2023-2024 is expected to be 4,882 million and 5.429 billion respectively, up 25% and 11% year on year, while net profit is 744 million and 880 million, respectively, up 113% and 18% year on year. The current market capitalization corresponding to 2023 and 2024 PE is 13x and 11x, maintaining the “buy” rating.
Risk warning: 1) the version number regulation policy is becoming stricter; 2) the game launch time does not meet expectations; 3) the risk that the information and data used in the research report are not updated in a timely manner.