The company's recent situation

On December 15 (Friday), we attended Friendship Time's investor meeting at the Suzhou headquarters. The management shared and exchanged views on the latest developments and deployment arrangements for the new tour “Floating Memories”, and the company's future strategies that the market is concerned about.

reviews

The key new tour “Floating Memories” will be launched in January next year, and may be expected to boost the company's performance.

The company previously announced that “Floating Memories” will be tested on all platforms on January 2, 2024 (simultaneous launch on PC). As of December 15, more than 4 million people have subscribed. In terms of specific characteristics:

The product promotion strategy is relatively three-dimensional. The specific arrangements include: 1) offline: integrated marketing activities such as the spokesperson Luo Yunxi's outdoor big screen launch (5 city twin towers), cultural tourism and catering linkages; 2) online: information flow purchase promotion, opening screens, theme songs/MVs, etc., and customized in-game NPCs and copy designs.

There have been innovations in research and development, including: 1) gameplay incorporating detective and puzzle solving to enhance interactivity; 2) the face-pinching system has a high degree of perfection in parameters, and good realism and detail presentation.

We believe that the company has accumulated a lot in ancient games. Next year, the main product “Floating Memories” will be more popular and the feedback from game users will be good, and it is expected to become a new iconic product for women on the racetrack.

The “Fukusheng” series was developed to the third part, and the IP ecosystem was gradually built. At the product level, the company has launched and reserved 3 products under the “Floating” IP, making it the company's flagship IP. Among them, “Fukusheng as a Song” (first part) has maintained a monthly turnover of 10 million since its launch at the end of 2019. “Floating Life Remembering Delicate” (Part 2) will be launched next year, and “Code Name: PW” (Part 3, using UE engine) is in the development stage. We expect to test it next year, and it is expected to push product quality to a new level.

In terms of surrounding ecology, the company also gradually enriches the company's IP ecosystem with blind box dolls, IP linkages, etc.

Continue to explore multiple category/directions to expand coverage. The company also has “Code: PE” and various reserve projects at the Incubation Center. Among them, “Code: PE” expanded the company's product style to European royal court style, and is also the company's first pure overseas customization project. The incubation center also reserves a variety of products through a bottom-up implementation strategy, which includes three specific directions: 1) customized projects in overseas regions; 2) pan-women-oriented projects (leisure, social sports, etc.); 3) other creative projects:

“Mo Sword River and Lake” (“Code Name: Xia”, has been released). We believe this product is expected to break through the company's racetrack and attract the male community by incorporating traditional martial arts themes and chess gameplay.

Profit forecasting and valuation

Maintain net loss of 102 million yuan to mother in 2023/net profit of 208 million yuan in 2024. The current share price corresponds to 12.5 times P/E in 2024. Maintain an outperforming industry rating. As the company's key products are scheduled and will enter a new product cycle, market confidence has increased. There is a certain valuation premium. The 2024 target P/E will be raised 15 times, corresponding to a 57% increase in the target price to HK$1.57, with an upward margin of 15%.

risks

Xinyu's performance fell short of expectations, macroeconomic downturn, industry regulatory policy risks, and liquidity risks.