Performance Overview: In 2023, the company achieved revenue of 816 million yuan, a year-on-year increase of 34.97%; achieved net profit of 51.9569 million yuan, reversing losses year-on-year; realized net profit deducted from mother of 522.374 million yuan, reversing year-on-year losses. With 2024Q1, the company achieved revenue of 215 million yuan, a year-on-year increase of 37.60%; achieved net profit of 1997.62 million yuan, an increase of 247.51% over the previous year; realized net profit without deduction of 19.6523 million yuan, an increase of 242.79% over the previous year. The company's 2023 profit distribution plan plans to distribute 2 yuan (tax included) to all shareholders for every 10 shares. The estimated cash payment amount is 293.384 million yuan.

Downstream demand for amusement equipment has been released, and overseas markets have been steadily expanding. In 2023, the game and amusement equipment sales business revenue was 398 million yuan, up 27.28% year on year; this business accounted for 48.79% of revenue, and gross margin in 2023 was 26.86%, a year-on-year decrease of 2.69 pcts. The company promotes product updates and iterations to jointly build competitiveness through diversified product matrices and online and offline collaborative marketing. At the same time, benefiting from the gradual elimination of macro-environmental impacts and better commercial conditions provided by domestic businesses, the willingness of some downstream playground customers to open playgrounds increased significantly, and small to medium playground customers actively expanded, bringing new demand to domestic game and amusement industry sales and optimizing the company's customer structure; in 2023, the company's overseas sales revenue of game and amusement equipment reached RMB 100 million, and the company steadily expanded overseas markets and strengthened product development reserves for overseas markets; at the same time, the procurement demand of customers in the Southeast Asian market recovered rapidly, further boosting the company's growth driver for overseas markets .

Revenue from the anime IP derivatives sales business expanded dramatically, and gross margin increased significantly. In 2023, the revenue from the anime IP derivatives sales business was 259 million yuan, up 75.64% year on year; this business accounted for 31.71% of revenue, and gross margin in 2023 was 41.16%, up 5.06 pct year on year. The number of anime and cartoon devices launched by the company and the number of stores covered by the company increased steadily in 2023, driving a sharp increase in revenue from anime IP derivatives. “Pokémon”, “Ultraman”, and “My World” were very popular in the market and contributed effectively to the performance. At the end of 2023, the company officially launched the first self-developed Guochaofeng card machine “Three Kingdoms Fantasy Battle”. The product cleverly integrates the IP elements of the Three Kingdoms with modern amusement technology, and combines an immersive interactive experience to arouse players' interest. In the future, the company will continue to focus on product reserves and R&D, upgrade and iterate the original animation IP derivative products to maintain players' popularity; reserve outstanding works from the world's top IP and put them on the market in a timely manner; at the same time accelerate cooperation with domestic trendy IP to develop Guochao IP animation and cartoon equipment, integrate high-quality domestic entertainment and cultural content into the amusement industry, build rich offline gaming scenarios, and explore the commercial monetization value of IP in depth.

The gross profit level of the playground business improved significantly year-on-year, and diversified operating methods such as brand licensing were explored. In 2023, the revenue from the playground operating business was 108 million yuan, up 13.81% year on year; this business accounted for 13.18% of revenue, and gross margin in 2023 was 1.06%, a year-on-year correction. Due to the impact of the macroeconomic environment, the company's playground operation business demand is under pressure in the short term. The company took the initiative to adjust the playground operation business strategy, slow down investment in new self-operated playgrounds, optimized some playground stores that had not met expectations for a long time, actively explored playground business cooperation models, developed the playground sector through diversified methods such as providing operation services and brand licensing, and optimized the playground operation business.

Profit forecast: The company's operating conditions improved significantly in 2023, and the profitability of multiple business lines increased significantly. We raised the company's profit forecast. We expect the company to achieve revenue of 10.20/11.63/1,291 billion yuan in 2024-2026, up 25.0%/14.0%/11.0% year on year; achieve net profit of 8259/9739/109.77 million yuan, up 59.0%/17.9%/12.7% year on year, corresponding to PE 26/22/20x, maintaining a “buy” rating.

Risk warning: Business recovery progress falls short of expectations, risk of stricter policies, risk of copyright parties not being able to renew contracts.