Incidents:
On April 25, 2024, Huali Technology announced its 2023 Annual Report and 2024 Quarterly Report:
(1) 2023 revenue of 816 million yuan (YOY +34.97%), net profit of 51.96 million yuan (YOY +172.96%), net profit of non-return to mother 52.24 million yuan (YOY +178.19%).
(2) 2024Q1 revenue of 215 million yuan (YOY +37.6%), net profit of 1998 million yuan (YOY +247.51%), net profit of not attributable to mother 1.65 million yuan (YOY +242.79%).
(3) In 2023, it is proposed to distribute a discovery dividend of 2 yuan for every 10 shares, for a total dividend of 29.34 million yuan, with a dividend rate of 56.5%.
Investment highlights:
2024Q1's performance increased year over year, and profitability improved significantly.
(1) 2023 revenue of 816 million yuan (YOY +34.97%), net profit of 51.96 million yuan (YOY +172.96%), net profit of non-return to mother 52.24 million yuan (YOY +178.19%).
The gross profit margin in 2023 was 28.65% (up 5.27pct year on year); the cost ratio for the period was 16.33% (down 5.05pct year on year), and the sales/management/ R&D expense ratio decreased 0.05/2.13/0.61 pct year on year.
(2) 2024Q1 has revenue of 215 million yuan (YOY +37.6%), net profit of 1998 million yuan (YOY +247.51%), net profit of 1.65 million yuan (YOY +242.79%) after deducting net profit from non-return mother. The sales business of game and amusement equipment and animation IP derivatives is growing strongly.
Demand for amusement equipment is picking up, and the anime derivatives business is growing strongly.
(1) Gaming and amusement equipment: In 2023, the sales revenue of game and amusement equipment was 398 million yuan (YOY +27.28%), and the gross profit margin was 26.86% (down 2.69pct year on year). The impact of the early macroeconomic environment was gradually eliminated. Some downstream playground customers were significantly more willing to open playgrounds, and overseas markets were steadily expanded, and overseas product R&D reserves were strengthened. In 2023, procurement demand from Southeast Asian customers recovered rapidly, and the company's overseas sales of game and amusement equipment reached 100 million yuan.
(2) Anime IP derivatives: In 2023, the sales revenue of anime IP derivatives products was 259 million yuan (YOY +75.64%), and the gross profit margin was 41.16% (up 5.06 pct year over year). The number of anime and cartoon equipment sold by the company and the number of stores covered have been steadily increasing, and the first self-developed Guochaofeng card machine “Three Kingdoms Fantasy Battle” was launched in 2023.
(3) Playground operation: Playground operating revenue of 108 million yuan (YOY +13.81%) in 2023, gross profit margin of 1.06% (-20.86% in 2022), a significant improvement, mainly due to actively adjusting playground operation strategies, slowing down investment in new self-operated playgrounds, and optimizing some stores that have not met expectations for a long time.
Profit forecast and investment rating: We expect the company's revenue in 2024-2026 to be 1,01/11.47/1,280 million yuan, net profit to mother of 0.76/0.96/110 million yuan, EPS of 0.52/0.65/0.75 yuan, and corresponding PE of 31.64/25.27/22.03X. As a leading domestic commercial game and amusement equipment leader, the company's business runs through the entire design, R&D, production, sales and operation industry chain. As domestic and overseas demand for amusement equipment picks up, the company's performance is expected to further improve. Based on this, the first coverage gave the company a “buy” rating.
Risk warning: Risks such as increased market competition, downward valuation center, supply chain supply and quality control, loss of personnel, IP renewal falling short of expectations, risk of substitution of other forms of entertainment, falling short of expectations in overseas expansion, and risk of credit impairment.