Performance Overview: The company released its 2024 quarterly report. 2024Q1 achieved operating income of 4.750 billion yuan, a year-on-year increase of 26.17%; realized net profit of 616 million yuan, a year-on-year decrease of 20.45%; and realized net profit deducted from non-mother of 616 million yuan, a year-on-year decrease of 8.12%.
The year-on-year decline in 2024Q1's performance was mainly due to a number of new games in the promotion period and increased traffic investment.
Revenue increased significantly year-on-year in the first quarter, and diversified product reserves continued to strengthen. The company launched products such as “The Legend of Mortal Immortals: The Human Realm” and “Overlord”, which were launched in 2023, driving significant revenue growth in 2024Q1. The company deeply integrates IP highlights to carry out continuous micro-innovation in return forms and activities, thereby lengthening the product life cycle. Products such as “Call Me the Treasurer”, “Doulo Continent: Battle of Spirits”, and “Song of the City on the Cloud” have maintained their vitality for many years since their launch. In 2023, the company's average monthly operating revenue of 8 products exceeded 100 million yuan, and the highest monthly turnover of mobile games distributed by the company worldwide exceeded 2.3 billion yuan. In terms of product reserves, the company has now stocked more than 40 mobile games, including boutique games such as “Code Name Duror MMO,” “Time Grocery Store,” and “The Son-in-law.” On the basis of deepening the four cornerstone categories of MMORPGs, SLG, cards, and simulated management, the company has developed lightweight product types, including RPGs, casual and educational games, and the company's diversified product layout continues to deepen.
Consolidate and create differentiated competitive advantages in the overseas market, and explore opportunities in new categories such as casual games. Relying on years of gaming experience, the company has taken root in the global market based on the “adapting to local conditions” strategy, consolidating racetrack advantages such as MMORPGs, SLG, cards, and simulated management, and continues to explore casual game market opportunities, and the overseas business is developing steadily. According to the Sensor Tower list, in 2023, the company was selected as one of the top three Chinese mobile game publishers in the overseas revenue list, and steadily ranked first among Chinese overseas game manufacturers. The company adopts the strategy of “lightweight heavy games, heavy light games” to form a differentiated competitive advantage. For example, “Song of the City on the Cloud” has achieved outstanding results in the Japanese and Korean markets through an operation strategy combining quality and efficiency, consolidating the company's competitive advantage in the MMORPG category in overseas markets. In addition, the company continues to experiment with overseas casual placement game promotion. The casual placement mobile game “Little Monster Asks” achieved excellent market performance after launching in the Hong Kong, Macao, Taiwan regions, Japan, South Korea, Southeast Asia, Europe and the US through deeply customized localized promotion and themed packaging.
Nine digital intelligent products are collaborated, and the AI Agent platform improves R&D and operation efficiency. Currently, the company's digital intelligence product matrix runs through multiple R&D processes, including “Zeus,” “Athena,” “Ares,” and “Cupid” on the R&D side, promoting nine major mid-stage products such as “Turing,” “Quantum,” “Tianji,” and “Easy View” on the operating side; the company has developed an internal AI Agent platform for digital intelligence products to upgrade autonomous decision-making functions and enhance collaborative office efficiency, improving the level of industrialization of the game R&D pipeline and the overall operation efficiency of the enterprise. Furthermore, while independently exploring and incubating internally, the company explores new opportunities in the field of AI through investment. The company focuses on large models and application tracks, directly or indirectly investing in high-quality technology companies such as Zhipu Huazhang, Shenyan Technology, and Silicon Heart Technology; companies that the company has already invested in spatial computing and game social platforms, Chenjing Technology and YAHAHA have deeply embraced AIGC tools to empower their main business; Thunderbird innovation, video, and flickering, which have already invested in the whole machine, are all creating the best carriers for AI, carrying AI content and functions. The company focuses on the hard technology circuit, continues to pay close attention to hardware and technology development, and invests to enable business innovation and sustainable development.
Profit forecast: The company's self-developed agency dual-line layout consolidates product reserves, the performance of benchmark products going overseas is steady, and AI applications are integrated into many aspects of the business. The company is expected to achieve operating income of 185.32/205.71/23.245 billion yuan respectively in 2024-2026, up 12.0%/11.0%/13.0% year on year, and net profit to mother of 30.24/34.26/ 3,940 billion yuan, up 13.7%/13.3%/15.0% year on year. Corresponds to PE 12/11/10x, maintaining a “buy” rating.
Risk warning: industry competition increases risk; risk of policy regulation; risk of game performance falling short of expectations.