Description of the event
37 Mutual Entertainment disclosed 24Q1 results. In 24Q1, it achieved revenue of 4.750 billion yuan (+26.17% YoY), net profit to mother of 616 million yuan (-20.45% YoY), and net profit of 616 million yuan (-8.12% YoY). The company plans to distribute 2.1 yuan (tax included) for every 10 shares, for a total cash dividend of 466 million yuan, accounting for about 75.6% of the company's Q1 net profit.
Incident comments
New minigame products performed brilliantly, and revenue reached a record high in a single season
The company's mini game product “The Search for a Thousand” is still at the top of the WeChat Mini Game Bestseller list. “Spirit Sword Master” and “The Unknown Man” are in the top 10, and “Soul Prologue” is in the top 20. The company has established strong competitiveness in the field of mini games. As a result of these new products, the company's 24Q1 revenue increased year-on-month. Benefiting from the relatively stable stock of the company's core products and the continued strength of the new mini-game circuit, the company's revenue grew for many consecutive quarters, and 24Q1 revenue increased 5.47% to 4.750 billion yuan.
Early launch or sequential recycling, Q1 performance improved month-on-month
Also, due to the low share of some new games and an increase in revenue from some self-developed games, the company's 24Q1 gross margin increased to 81.7% year over month; due to the strong launch of various best-selling games in Q1, 24Q1's sales expenses increased to 2.89 billion yuan year on month, and the sales expense ratio was 60.87% (+9.9pct year over year, +0.25pct month over month). Affected by the launch of the new game, the company's net interest rate declined year-on-year in 23Q1, and increased 2.6 pct to 12.97% month-on-month. Profit margins are expected to continue to be optimized along with the successive recycling of mini-game products in the early stages.
The Q1 equity distribution plan was disclosed, and the dividend ratio increased again
The company plans to distribute 2.1 yuan (tax included) for every 10 shares, with a total cash dividend of 466 million yuan, accounting for about 75.6% of the company's Q1 net profit. The dividend ratio increased once again from the high base of 68.2% of the 2023 dividend plan.
Rich product reserves, active deployment of AI to enable research and operation, and focus on the growth potential of the mini game circuit and the implementation of subsequent product performance? A number of new mini-game products launched by the company in the early stages have performed steadily, and it is expected that they will continue to release performance after entering a stable period. In addition, the company has now stocked more than 40 self-developed or proxy mobile games, including various boutique products such as “Code Name Dora MMO”, “Time Grocery Store”, and “The Son-in-law,” covering various categories such as MMORPGs, SLG, cards, simulation management, and RPGs, casual and educational games. New games may increase performance. In terms of game stock, the company continues to enhance the vitality of various products it operates, such as “Doulo Continent: Soul Master Showdown”, “Puzzles & Survival”, and “Call Me the Treasurer”, and is also expected to continue to contribute steady revenue and profits. Furthermore, the company actively lays out AI to enable research and operation, and the company produces more than 280,000 AI-2D drawings per month.
In the character drawing process, the company can save an average of 60%-80% of working hours by implementing new AI-enabled processes.
Profit forecast and investment advice: We expect the company's net profit to be 2.96 billion and 3.38 billion in 2024 and 2025, respectively, corresponding PE of 12.5 and 11.0 times, respectively, to maintain a “buy” rating.
Risk warning
1. Risk that product version approval, launch progress and flow performance fall short of expectations; 2. Industry regulatory risks.