The company predicts a net profit of around HK$70 million in 2023, which is better than our expectations
The company released a performance forecast. It is expected to achieve net profit of HK$70 million in 2023 (net loss of HK$504 million in 2022), of which 2H23 is expected to achieve net profit of HK$430 million (2H22 net loss of HK$332 million), which is better than our expectations. We judge that it is mainly due to the outstanding contribution of key products, and that the company's cost control is better than expected, in addition, investment income increases profits.
Key points of interest
Revenue growth in the two key new games and apps was impressive in 2023. In terms of games, according to the company's announcement, the new SLG game “Doomsday: Last Survivors” and “Viking Rise” achieved total revenue of over HK$1 billion in 2023 (total of HK$40 million in 2022); of these, 2H23 achieved a total turnover of over HK$600 million, an increase of over 65%. In terms of the app business, according to the company's announcement, revenue in 2023 increased more than 4 times compared to 2022. We estimate that revenue for the full year of 2023 may reach HK$500 million. We believe that the company's two key new SLG game and app businesses performed well in 2023 and are expected to drive year-on-year growth on the company's revenue side.
Continued cost reduction and efficiency boosts profit release, and investment business generates profits. According to the company announcement, the company's R&D and management expenses decreased by about 26% year on year in 2023, and the company said that the main personnel structure continues to be optimized.
In terms of sales expenses, we judge that 2H23's launch of the flagship product “Lords Mobile” is relatively stable; for the two key new games, considering that the pace of purchase volume often matches the pace of major product updates, we believe that 2H23 did not invest heavily in purchasing volume, which also helped release 2H23 profits. Furthermore, in terms of investment income, the company said that the investment business in 2023 has entered a harvest period, and investment project valuations are expected to generate an increase, while the total loss related to the company's investment in 2022 exceeds HK$350 million.
“Doomsday”, “Viking Rise” and the app business continues to iterate, focusing on the 2024 turnover performance. In terms of games, the company said that 2024 will combine the pace of game updates to increase promotion efforts and further tap revenue potential. We believe that “Doomsday” and “Viking Rise” may usher in a new buying cycle with gameplay updates, which is expected to drive a further increase in game traffic. In addition, products such as SLG stored by the company may be tested one after another, so it is recommended to keep an eye on the progress of the new game. In terms of the app business, we believe that the company is expected to continue to control the ROI of investment output and achieve steady growth in the flow level.
Profit forecasting and valuation
Considering that the company's cost control was better than expected and investment income increased profits, the 23-year profit forecast was raised from non-IFRS net loss of HK$396 million to non-IFRS profit of HK$131 million, maintaining the profit forecast for 24/25. Current stock prices correspond to 8 times 24-year non-IFRS net profit. Maintaining a neutral rating and a target price of HK$3.63, corresponding to 10 times 24-year non-IFRS net profit, with an upward margin of 23%.
risks
New tourism and new business performance fell short of expectations, flow of main products declined, spending was higher than expected, geopolitical and regulatory risks, and macroeconomic pressure.