23Q4 performance situation:
23Q4 revenue of 27.140 billion yuan (yoy 7%, qoq -0.5%), lower than market expectations of 28.212 billion yuan; 23Q4 non-GAAP net profit of 7.379 billion yuan (yoy 16%, qoq -4%), lower than market expectations of 7.948 billion yuan. The company's dividend rate for the quarter reached 74%, the highest level in history (except for the special dividends during the 19Q3 sale of koalas). Revenue and profit fell short of expectations. There are several main factors: 1) Deferred game revenue was not converted into operating income. Since players' spending pace affects the pace of deferred revenue recognition, some revenue has yet to shift from balance sheet to profit statement. 2) PC games declined more year over year, with a year-on-year decline of -23. %, mainly due to the transition from Neverland (PC game) to free-to-play games since July '23, while 22H2 had strong revenue, so the base for the same period last year was high; 3) Businesses such as Youdao and Cloud Music performed lackluster. 4) In response to market competition, the sales expense ratio has increased to a certain extent, which is slightly higher than the average for the past 4 quarters.
24 will continue a strong 23 year product cycle, which is expected to continue to surprise shareholders:
1) 23-year increase: The company launched “Against the Cold (Mobile Game)” at the end of June '23, and “Egg Boy Party” was vigorously promoted throughout '23. We expect the two games to contribute a total of 16 billion yuan in cash revenue (before deferral) to iOS and Android platforms for the full year 23 (of which, the mobile game Against the Shui and Cold contributed about 8.72 billion yuan in half a year; Egg Boy Party contributed about 7.25 billion yuan for the whole year).
2) 24-year increase: First, mobile games against the cold will continue to grow. Since it was only launched for half a year in '23, we expect the game's 12-month revenue to reach 10.8 billion yuan; second, we assume that Egg Boy Party will maintain a steady monthly turnover of 300 million yuan during the non-holiday period, and monthly turnover during important holidays will increase significantly, and the annual Egg Boy Party turnover is expected to reach 4.2 billion yuan; Third, there is hope that it will be launched one after another in 24Q1-24Q3., the annualized turnover is expected to be 40- Between 7.5 billion yuan, the annual revenue contribution depends on the online nodes.
Investment advice
We expect CY's net profit (non-GAAP) for 24/25/26 to be 373.04/413.19/44.48 billion yuan, yoy 14.4%/10.8%/7.7%, respectively. The previous forecast value for CY 24/25 was 341.78/38.014 billion yuan, respectively. Maintain an “Overweight” rating.
Risk warning
Fluctuations in the number of game versions; uncertainty about players' spending intentions and revenue expectations