In 24Q1, the company's old game performance was steady. A number of new games were launched, and revenue increased 5.58% month-on-month. The company has abundant reserves and many products in hand, and is expected to further improve performance in the future. Based on comprehensive considerations, we expect the company's net profit to be 10.73/12.10/1,344 billion yuan respectively in 24-26 years, corresponding to the current stock price-earnings ratio of 11.6/10.3/9.3 times, respectively, maintaining a “highly recommended” investment rating.
The company released the 24Q1 quarterly report, achieving operating income of 927 million yuan, a year-on-year decrease of 18.97%; realized net profit of 255 million yuan, a year-on-year decrease of 17.35%; realized deducted non-net profit of 198 million yuan, a year-on-year decrease of 29.45%; and achieved operating cash flow of 231 million yuan, a year-on-year decrease of 6.11%. Among them, the balance of unamortized recharges and items at the end of the 24Q1 period was $529 million, an increase of 88 million yuan over the end of 23, mainly due to the increase in the deferred balance of revenue from confirmed game item consumption due to newly launched games, which the company has already collected but not yet confirmed in accounting; other revenue decreased by 23 million yuan year-on-year, mainly due to a narrow reduction in government subsidies; if the amortization balance of items and the impact of government subsidies is further excluded, the year-on-year decline in net profit to mother will be collected to about 14%.
Revenue increased slightly month-on-month, and overseas revenue doubled year-on-year. 24Q1 compared to 23Q4, with revenue growth of 5.58%. The sales revenue for the old game “Enquiry” mobile game increased slightly, and the new games “Immortal Family”, “Flying Dragon Rider (Overseas Edition)”, “Shenzhou Thousand Foods”, “Monster NeverCry (European and American)”, and “Outpost: Infinity Siege” were launched on 24Q1, leading to revenue growth over the same period. Among them, overseas revenue for 24Q1 totaled 139 million yuan, an increase of 146.68% over the previous year. On 24Q1, the company mainly released “Fly Dragon Knight (Overseas Edition)” and “Monster Never Cry (European and American version)” overseas, and “Outpost: Infinity Siege” was also launched on Steam in the international version. As of the end of the 24Q1 period, the overall overseas game business had not been profitable.
Non-net profit deducted from mother in 24Q1 fell 32.88% month-on-month. The main reasons were as follows: sales rates increased by 5.81 pct to 31.67%, 24Q1 several new products were launched, and the pre-launch investment was large. At the same time, “Ask Mobile Games” and “Easy Thinking (Mainland Edition)” launched separate New Year's clothing and anniversary events, and distribution costs increased month-on-month; 23Q4 reduced part of the bonuses anticipated for the first three quarters based on the company's annual business performance, project performance and employee performance; 23Q4, the subsidiary Xiamen Thunder Interactive Network Co., Ltd. Canceled 22 The difference between the annual income tax accrued at 25% and the amount of tax actually settled. Operating cash flow declined 36% month-on-month in Q1, which means that the 2023 year-end bonus was paid in 24Q1. In terms of exchange gains and losses, the 24Q1 profit was 9.4817 million yuan, and the 23Q1 loss was 25.3432 million yuan, an increase of 34.824,900 yuan over the previous year.
The number of operators has increased, and game product capabilities and art production capabilities have continued to be strengthened. The average monthly number of 24Q1 companies is about 1,472, an increase of about 180 over the same period last year (up about 13.93% year over year), the number of R&D personnel increased by about 137, and the number of operating business personnel increased by about 43. We are optimistic that the company will step up its efforts in game product development in the future.
Product reserves are abundant or new volume is being added. Self-developed products: The Magic Placement product “Code M72” has applied for a version number and will be distributed in mainland China, Hong Kong, Macau, Taiwan, and Southeast Asia; the magic placement product “Legend of the Sword” has applied for a version and will be released in mainland China, Hong Kong, Macao, Taiwan, Japan and South Korea, and is expected to be released overseas in the first half of '25; the strategic tower defense game “The Strongest Castle” has obtained a version number and is being distributed globally; the Western Fantasy Placement “Code Number M11” has not yet applied for a version number and is scheduled to be distributed globally. Proxy products: The vertical screen game “One Piece: Dream Pointer” has obtained a version number and was launched in mainland China on April 1, '24; “Hundred Million Lightyears” and “Fengshen Fantasy World” have obtained a version number and are expected to be released in 24; “Lost Castle 2” has yet to obtain a version number.
Maintain a “Highly Recommended” investment rating. Taking into account the company's various business developments, we expect the company's 24-26 revenue to be 40.59/45.99/5.122 billion yuan, respectively, with year-on-year growth rates of -3%/13%/11%, respectively; net profit to mother will be 10.73/12.10/1,344 billion yuan, respectively, with year-on-year growth rates of -5%/13%/11%, corresponding to the current stock price-earnings ratio of 11.6/10.3/9.3 times, respectively, maintaining the “Highly Recommended” investment rating.
Risk warning: New game launches fall short of expectations, risks of release falling short of expectations, rising purchase costs, lower R&D progress than expected, etc.