Core views
The company's performance is at the bottom of pressure. The new game catalyzes factors such as TapTap's marginal improvement or catalyzes the company's performance to achieve marginal improvements; in terms of the game business, although the flow of old games has declined, the overall situation is controllable. In terms of new games, “Sword of the Mule” is about to launch on 11.23 Japan National Service. It is a battle flag game focusing on pixel art style and differentiated style, and revenue monetization or exceeding expectations; next year, “Heartbeat Town” and “Let's Go Muffin” are expected to contribute new growth. In terms of TapTap, the company's H2 MAU increased month-on-month. It is expected that TapTap's revenue and MAU will continue to grow under the premise of the launch of the new game and next year's marketing growth.
occurrences
On 11.23, the national uniform version of “Sword of the Mule”, a pixel battle board game owned by Xindong, will be launched. Previously, the game had already been launched in Hong Kong, Macao and Taiwan and achieved good sales. As of 11.20, “Sword of the Mule” had over 1.2 million reservations on TapTap and received an 8.0 rating.
Brief review
The company's performance is currently under pressure and bottoming out, and it may be repaired next year.
23H1 had revenue of 1,753 million yuan (YoY +9.98%); net profit of the mother was 90 million yuan, loss of 386 million yuan in the same period last year. The year-on-year reversal of losses to profit was mainly due to the company's increased revenue and cost reduction and efficiency. We believe that the company's H1 performance is bottoming out, and next year's profit may be repaired: (1) Gaming: The flow of old games is expected to remain stable, and new games such as “Sword of the Mule” and “Heartbeat Town” are expected to bring all the new volume; it is expected that the game business may be profitable next year; (2) TapTap: TapTap's revenue and MAU in the second half of the year have increased month-on-month, and MAU is expected to grow well next year under the premise of increasing new travel and marketing expenses.
Game business: The decline in the flow of old games is manageable, and there is a possibility that new games will exceed expectations.
23H1 game business revenue is 1.15 billion yuan (YoY +2.1%), of which online game revenue is 1.08 billion yuan (YoY +3.7%), online game MAU is 13.269 million people (YoY -13.5%), and online game MPU is 1.389 million people (YoY -9.2%), which is affected by the decline in the number of “Sausage Party” users. From the perspective of the game life cycle, the company's games such as “Sausage Party” and “RO Ragnarok” are in the mature stage. The turnover has declined year-on-year, but later, the flow has declined or is at a manageable level. When the new game “Torchlight” was launched on September 8, it entered the top 30 bestsellers. Currently, TapTap has a rating of 7.4; “Torchlight: Infinite” is expected to continue to attract users through high-frequency seasonal content updates and gameplay iterations.
On 11.23, the company's other pixel battle flag game, “Sword of the Suzuran”, was released for public testing. “Sword of the Mule: For This Peaceful World” is an SRPG game developed by the company itself. Set in a medieval fictional world, it is an authentic Japanese RPG with chess elements, exquisite pixel style, and a macro-epic story. The game reproduces the classic pixel style through new 3D technology, so users can enjoy a new generation of aesthetics rendered with a new engine. We believe that the differentiated style of “Sword of the Mule” may have exceeded expectations, and that this type of game has a long life cycle, which may drive an overall recovery in the company's game business. Looking ahead to next year, “Heartwarming Town”, “Let's Go Muffin”, and “Ether Restart Day” may bring in new revenue increases.
Information service business: Driven by new visitors and expected increases in marketing expenses, TapTap's revenue and MAU are expected to continue to grow 23H1 information service business revenue at 603 million yuan (YoY +28.96%). Increased credit revenue in the industry led to increased marketing demand, while the company's advertising system and customer coverage increased. The Chinese version of TapTap has a MAU of 32.967 million people (YoY -18.6%), mainly due to the company's marketing cost control. According to Jiuqian Data 23H2 TapTap MAU's month-on-month improvement, we expect that by the end of the year and next year, driven by the new game and the expected increase in marketing expenses next year, the company's TapTap business revenue and MAU may experience a marginal increase in the company's TapTap business revenue and MAU.
Profit forecast: We expect the company's revenue to be 37.4 billion yuan and 4.54 billion yuan, up 9.1% and 21.3% year-on-year respectively; net profit is 2.0 billion yuan and 350 million yuan respectively; current market value corresponding to 23, 24, and 25 PE is 29.18, 17.08, and 12.09 times; products such as “Sword of the Suzuran” may bring in more revenue than expected. We are optimistic about the game business restoration brought about by the incremental contribution of new games next year, TapTap's revenue and MAU. We will give the company 25 times PE in 24 years, corresponding to the target price For 19.4 HKD, maintaining a “buy” rating risk warning: the risk of insufficient consumption in the game industry due to macroeconomic changes, the risk that the game industry version may be restricted, the risk of insufficient demand for games going overseas, the risk that competition within the game industry will intensify, such as the risk that new games launched by NetEase and other companies may cause the company's users to decline, the risk that the market cost of game purchases will continue to rise, and the company's new games may not be available; the company's mature games face the risk that game flow and stock of users will continue to decline; the company's new games may face risks of falling short of expectations Version risk, the risk that the company's potential pipeline falls short of market expectations, and the risk that the company's performance may fall short of expectations.