Xindong's annual revenue for the full year of 2023 was 3.39 billion yuan, -1.22% year on year; net loss to mother was 80 million yuan, down 85.00% year on year; adjusted net profit to mother was 0.3 billion yuan, down 92.93% year on year. The company's new product “Let's Go Muffin” surpassed 100 million yuan in February. It is expected to contribute to increased performance in the future. There are many reserve versions, and TapTap's revenue and gross margin have risen sharply. Maintain a buy rating.
Key points to support ratings
Game revenue declined, and party games were affected by competition. Game revenue in 2023 was 2.09 billion yuan, -14.7% YoY, accounting for 61.7% of revenue; gross profit margin was 46.67%, +1.23 ppts year over year. Among them, online game revenue was 1.96 billion yuan, -15.1% YoY; paid game revenue was 120 million yuan, -2.5% YoY. There were 124.46 million monthly active online game users, -23.3% YoY; 1.307 million monthly paid users, -16.9% YoY. Mainly due to the decline in the number of users of “Sausage Party” due to the launch of competitive products and changes in the external environment, this was partly offset by the increase in the number of users brought about by the three new games “Firepower Soda”, “Torchlight: Infinite”, and “Sword of the Suzuran”.
The self-developed blockbuster has performed well, and it is expected to launch the national service in May. Since the launch of the new casual RPG game “Let's Go Muffin” at the end of January 2024, it has basically remained in the top five best-selling lists in Hong Kong, Macao and Taiwan. According to the game's grapes, the monthly turnover of the game broke 100 million yuan in February. “Let's Go Muffin” has received a version number, and the national service is expected to go live on May 15. In addition, the company currently has four games in stock. Among them, “Heartfelt Town” and “Ether Restart Day” have already obtained edition numbers.
The number of monthly active users has returned to growth, and TapTap's revenue has increased dramatically. In 2023, TapTap's revenue was 1.30 billion yuan, +32.6% year over year, accounting for 38.3% of revenue; gross profit margin was 84.18%, +10.49 ppts year over year. The Chinese version of TapTap had 35.81 million monthly active users, -13.6% year-on-year; the international version had 5.755 million monthly active users, -36.6% year-on-year. The decline in the number of active users was mainly due to controlling marketing expenses. After adjustments, the number of monthly active users of the TapTap platform has returned to a growth trend, and the average MAUS increased year-on-year in 23Q4.
Gross profit margins have increased dramatically, and all expenses have been reduced. The company's gross profit margin in 2023 was 61.03%, +7.54ppts year-on-year. Mainly due to the increase in revenue from self-developed games and the increase in the gross profit margin and revenue share of the TapTap platform segment. Sales/management/R&D expenses were 25.53%/6.63%/29.97%, respectively, -1.36/ -0.19/ -7.45ppts year-on-year. The sharp decline in R&D expenses was mainly due to a decrease in employee welfare expenses due to a 13.8% drop in the number of new entry-level employees to 1,031.
valuations
We believe that Xindong's self-developed new products have performed well and are rich in self-developed reserves, and will contribute to increased performance in the future; the number of active users on the TapTap platform has returned to growth, and revenue growth for single users will accelerate. Considering that its products were impacted by competing products, we lowered net profit due to mother in 2024/25/26 to $3.32/576.804 million, corresponding PE of 20.50 /11.99/ 8.46 times, maintaining the purchase rating.
The main risks faced by ratings
Game regulation exceeded expectations; macroeconomic decline; new game performance fell short of expectations.