Revenue fell slightly short of expectations. The company's revenue in 2023 was RMB 7.1 billion, down 10% year on year, below market expectations of 3.1%; among them, game and application service revenue increased 6.6% year over year to $4.2 billion, and game revenue remained strong; Mynd.ai revenue fell 25.7% year on year to 2.9 billion yuan, mainly affected by the return to normalization of the post-pandemic business environment; gross margin improved 7.0 pp to 61.9% year over year, mainly benefiting from the increase in the share of high-margin game revenue; adjusted net profit was 960 million yuan, and the adjusted net margin was 13.5%. In addition, the company announced a final dividend of HK$0.4 per share. The total dividend for the year reached HK$1.8 per share, with a dividend ratio of 16.4%.

The game business remains stable, and game reserves are abundant. The company's game business remained strong in 2023, with game revenue increasing 9.6% year on year to 3.8 billion yuan; among them, domestic game revenue increased 10.5% year on year and overseas game revenue increased 4.5% year on year, mainly affected by the decline in player activity after the pandemic, accounting for 15% of overseas revenue. The core game IP “Magic Domain” remained stable. Thanks to the company's operating strategy, “Magic Domain” mobile game revenue increased 14% year over year to 2.9 billion yuan, and the average length of time “Magic Domain” IP users increased 50% year over year. The company has rich game reserves, and various products such as “Magic Domain Remake”, “Codename - Alpha”, and “Code - Dragon” are expected to be launched in the second half of the year.

Maintaining a leading position in the education tablet market, boosting the SaaS business. The company Promethean continues to maintain its leading position in the market, ranking first in the global K-12 interactive flat panel display market share of 17.4% in 2023 (excluding China). Promethean recently launched a comprehensive SaaS solution, leveraging the company's hardware advantages and global market channels to explore software revenue opportunities.

Maintain the “Buy” rating and adjust the target price to HK$15. We expect the company's 2024E/2025E revenue to be $7.2/7.6 billion, adjusted net profit of $1.1/1.3 billion, and adjust the target price to HK$15, corresponding to 8x P/E in 2024, maintaining a “buy” rating.

Investment risk: Gaming performance falls short of expectations; education business recovery falls short of expectations.