Key points of investment
Event: On November 10 and 12, the company published two consecutive articles on its WeChat account relating to the new strategic layout, explaining and looking forward to the cooperation of AI game engines and the overall strategic layout, respectively.
Actively deploy the AI game engine, target the positioning and functions of Unity according to the content of the company's WeChat account. According to the content of the company's WeChat account, LAYABox Technology Co., Ltd. (hereinafter referred to as LAYABOX), which collaborated this time, owns the star engine product LayaAir. The company will reach a strategic cooperation agreement with LAYABOX, and the two sides will jointly build an innovative AI game engine. According to the official website of LAYABOX, founded in 2014, it is a leading provider of game engines and metaverse content creation tools in China, with over one million developers and hundreds of intellectual property rights and patents. Its products include the AI game engine LayaAir, the game UGC+AIGC platform LayaMe, the lightweight metaverse creative platform Layaverse, and the industrial 3D engine LayaD (under development). From the video previously released by the company, we can see that LayaAir's polishing is quite mature and already has the “Wensheng 3D Scene” function, that is, developers can create 3D scenes through language descriptions. Currently, most of the AI auxiliary tools commonly used in the industry are created for 2D scenarios, so we believe that the “Wensheng 3D Scene” feature this time is a major breakthrough, will significantly improve game production efficiency, and is very similar to the features newly launched by Unity, a game engine that is currently more mature in the international market. Specifically, at the GDC developer conference held in March, Unity released a video called “Unity AI”. The video entered a series of instructions in the form of a text box, and then the corresponding 3D scene was generated according to the requirements of these instructions.
LayaAir focuses on applet games, and is expected to replicate Unity's path to success, Unity's early development path, and has many competitors. There are not only powerful third-party engines such as “Unreal,” but also engines that are deeply tied to developers, such as “Origin” and “Frost,” but Unity deployed mobile devices earlier and successfully enjoyed the huge explosion of mobile game dividends after 2012. Market share increased dramatically, and the global market share reached 49.5% in 2021. LayaAir currently has 1 million developers. It itself has taken a lead in the applet terminal and is highly recognized. For example, Alipay games have recently been fully opened, and the supported engines are LayaAir, Cocos, and Unity. We believe that applet games are now in the early stages of development, and there is huge room for future development. Very similar to the mobile game market in 2012, LayaAir's development is expected to replicate Unity's path of success.
LayaAir continues to improve the strategic puzzle according to the company's WeChat account. According to the company's WeChat account, the company's strategy at the moment is divided into four major levels: technology layer, tool layer, platform layer, and game product layer, while LayaAir is the latest part of the tool layer. At the same time, it forms technology sharing with the AI game editor (tool layer) released in June, and collaborates with the AI game creation platform (platform layer) to improve the developer ecosystem. The company's strategic puzzle continues to improve.
Investment advice
We are optimistic about the company's overall development strategy, especially the new development opportunities brought to the company by the LayaAir engine's reserves of AI technology. The company's revenue for the year 23-25 is 10.0/15.2/20.9 billion yuan, and net profit is 1.86/3.16/601 billion yuan respectively; the current stock price corresponding P/E is 78/46/24 times, giving it a “buy” rating.
Risk warning
The development of AI technology fell short of expectations, and the game industry was adversely affected by the decline in macroeconomic growth, etc.