Incidents:
The company announced its full year 2023 results.
Comment:
Gross margin grew steadily, and the TapTap platform's revenue share increased throughout 2023. The company achieved operating income of 3.389 billion yuan and realized gross profit of 2,068 billion yuan, an increase of 12.7% over the previous year, and gross margin of 61.03%, an increase of 7.54 pcts over 2022. Earnings before adjusted interest, tax, depreciation and amortization were achieved in 2023, turning a loss into a profit from the previous year. By business, the game business achieved revenue of 2,092 billion yuan, accounting for 61.72%, down 9.77pct from the previous year. Among them, the online game business achieved revenue of 1,961 billion yuan; paid games achieved revenue of 121 million yuan. The TapTap platform achieved annual revenue of 1,297 billion yuan, an increase of 32.63% over the previous year. The share of revenue increased to 38.28%, an increase of 9.77pct over the previous year. R&D expenditure in 2023 was 1,016 billion yuan, and the R&D expenditure rate was 29.97%, down 7.45 pcts from the previous year. Mainly due to game project restructuring and personnel optimization, the company currently has 1,031 R&D team members, a decrease of 165 compared to the same period last year.
“Let's Go Muffin” was launched in Hong Kong, Macau, and Taiwan. The self-developed game is expected to continue to provide growth momentum in 2023. The average number of monthly active users of the company's online games is 124.46 million, and the average number of monthly paid users is 1.377 million. In 2023, the company completed the launch of “Torchlight: Infinite” and “Firepower Soda” in China, and the launch of “Sword of the Suzuran” in Hong Kong, Macao, Taiwan and mainland China. In early 2024, “Let's Go Muffin” was also launched in Hong Kong, Macao and Taiwan. By the end of 2023, the company had 20 online games and 31 paid games. Self-developed games were launched one after another, providing potential for subsequent game business revenue growth. In 2023, the average number of monthly active users of the TapTap China app was 35.81 million, down 13.6% year on year, mainly due to a year-on-year decline in the number of new users due to a decrease in game time after the epidemic and controlling marketing costs in the first half of '23. The average number of monthly active users of the TapTap international app was 5.785 million, a slight decrease from 2022. Currently, after adjustments, the number of monthly active users has returned to the growth trend, and the number of monthly active 2023Q4 users has surpassed the same period last year.
Investment advice and profit forecasting
The company focuses on self-developed game products, continuously promotes cost reduction and efficiency, and raises the level of commercialization. Considering that the company's self-developed products contributed to revenue, the increase in the size of users and distribution efficiency of the TapTap platform led to an increase in advertising revenue. It is estimated that net profit of 2.94/3.83/475 million will be achieved in 24-26. The corresponding EPS is 0.61/0.80/0.99 yuan/share, and the corresponding PE is 24/18/15x. Maintain a “buy” rating. (The benchmark for the Hong Kong stock market is the Hang Seng Index)
Risk warning
User growth falls short of expectations, policy regulation risks, and new business incubation falls short of expectations.