The three major businesses all performed well, driving a significant increase in the company's performance and maintaining the “buy” rating
In 2023Q3, the company achieved operating income of 1,225 million yuan (+33.90%, +5.83% month-on-month), net profit of 150 million yuan (+47.56% year-on-year, -28.35%), and net profit of 127 million yuan after deducting non-return net profit of 127 million yuan (+28.36% year-on-year, -38.05% month-on-month). The first three quarters of 2023 achieved operating income of 3,571 billion yuan (+26.94% yoy), net profit of 558 million yuan (+90.81% yoy), net profit of 523 million yuan (+86.33% yoy) after deduction of net profit of 523 million yuan (+86.33% yoy). The company's performance growth in the first three quarters of 2023 was mainly due to: (1) the poker business benefited from an increase in unit prices and a year-on-year increase in profit; (2) the game business showed early investment results and achieved revenue and profit growth; (3) benefiting from the recovery in investment demand, the marketing sector business grew steadily, achieving revenue and profit growth.
We maintain our profit forecast for 2023-2025. It is estimated that the company's net profit for 2023/2024/2025 will be 7.49/8.98/1,017 billion yuan, corresponding to EPS of 1.82/2.19/2.48 yuan, respectively, and the current stock price corresponding to PE is 13.7/11.4/10.1 times, respectively. We are optimistic that the company's three major businesses will continue to grow and maintain the “buy” rating.
Expense ratio control has improved markedly, and the decline in gross margin brought about by changes in revenue structure has dragged down short-term profit margins
The gross margin of the 2023Q3 company was 30.3% (-9.02pct y-o-y, -9.99pct month-on-month), or due to the increase in revenue from the digital marketing business with lower gross margin. The sales expense ratio is 5.67% (y-4.95pct, month-on-month -3.34pct), the management expense ratio is 5.47% (y-1.99pct, month-on-month +0.08pct), the R&D expense ratio is 4.77% (y-4.38pct, month-on-month -0.02pct), and the net profit margin is 12.24% (yoy +1.13pct, month-on-month -5.84pct). The company's optimized game launch strategy led to a sharp drop in the sales expense ratio. At the same time, the management expense ratio and R&D expense ratio also declined, but the decline in gross margin dragged down the net interest rate. We believe that as the company launches new games or old games and continues to iterate, leading to an increase in the share of game business revenue, the company's profitability is expected to pick up.
The three major businesses may continue to pick up, continuing to drive high growth in the company's performance
(1) In terms of playing cards, business operations are stable, and the increase in unit prices has brought new profit margins. With the completion of the construction of the company's card production base project, production capacity has expanded, and profit volume is expected to increase further. (2) In terms of games, the company has a clear advantage in the core fishing game category. Since 2023, the main products “Fishing for the Sky” and “Fingertip Fishing” have basically remained in the top 150 of the iOS bestsellers list. (3) In terms of digital marketing, with the liberalization of the epidemic, macroeconomic recovery, and demand for marketing driven by short dramas, etc., the business volume is expected to grow steadily.
Risk warning: game flow is declining, playing card sales are falling, digital marketing business growth falls short of expectations, etc.