Description of the event
Yao Ji Technology disclosed its 2023 results. In 2023, the company achieved revenue of 4.307 billion yuan (+10.01%), net profit to mother of 562 million yuan (+61.37% year over year), after deducting non-net profit of 519 million yuan (+51.72% year over year). Of these, 23Q4 achieved revenue of $735 million (-3.22% YoY), net profit attributable to mother of $0.05 million (-91.46% YoY), and deducted non-net loss of $0.4 billion (YoY).
The company disclosed 24Q1 results. In 24Q1, it achieved revenue of 982 million yuan (-17.38% YoY, +33.47%), net profit to mother of 151 million (-23.94% YoY), and net profit of 150 million yuan (-21.60% YoY).
Incident comments
The game business contributed to an increase in core performance in 2023, or a decline in revenue in 23Q4 due to factors such as falling game traffic. 1) Domestic game products “Fingertip Fishing” and “Fishing Boom” performed well with the launch of the new versions in 2023, and “Yao Ji Fishing 3D Edition” and “New Era of Fishing” have grown steadily since their launch. The performance of foreign game products declined due to the international situation, intense market competition, and changes in privacy policies. The company's game business achieved revenue of 1,226 billion yuan (+1.94% year over year); its Chinese gaming subsidiary Shanghai Chengqi achieved revenue of 1.03 billion yuan (+2.35% year over year) and net profit of 480 million yuan (+55.57% year over year) in 2023; overseas business subsidiary Big Fish Sports achieved revenue of 123 million yuan (+3.06% year over year) in 2023, with a net loss of 50 million yuan (year-on-year loss). 23Q4's stock product flow may have declined from a higher base, putting pressure on Q4's revenue; 2) The company's poker business achieved revenue of 1,090 billion yuan (-1.57% year over year), but due to sales structure adjustments and reasonable pricing, gross margin increased 3.4 pct to 26.6%, and poker business performance is expected to achieve steady growth; 3) In terms of digital marketing business, the company pioneered the VTATM model to help multiple customers launch new games, and the Internet marketing innovation business achieved more than 1.9 billion yuan in revenue in 2023 (+24.9 year on year) %, of which +54.7% year over year in the first half of 2023), it is expected that the slowdown in marketing revenue growth in the second half of 2023 will have an impact on the company's Q4 revenue.
Factors such as impairment put pressure on 23Q4 results, and 24Q1 revenue and profit improved month-on-month. 1) In 2023, the company prepared goodwill impairment losses for Big Fish Sports and others, resulting in a goodwill impairment loss of about 50 million yuan. In addition, long-term equity investment impairment losses were about 27 million yuan, which had a one-time impact on the company's 23Q4 performance. 2) Due to the high base of the 23Q1 game business, the 24Q1 company's revenue declined year-on-year, +33% month-on-month; in addition, due to adjustments in the company's overseas game business operation model, 24Q1 sales expenses were +55% year-on-year to 0.7 billion yuan. It is expected that the company's investment in overseas distribution will gradually be recovered.
It is proposed to pay 9 yuan (tax included) for 10, and the dividend ratio will increase significantly. The company plans a total of 371 million yuan in cash dividends this time, accounting for about 65.94% of net profit in 2023. The dividend amount and dividend ratio have increased significantly compared to previous years.
The main business is expected to continue to be steady, and the diversified business layout opens up room for growth. 1) It is expected that after the company further expands its production capacity, it is expected to solve the company's production capacity bottleneck and further expand its market share; 2) the company has outstanding performance in the casual game category, and is also competitive; early R&D and promotion investment is expected to continue to release profits in the future; 3) In 2023, the parent company of Card Hobby (the parent company of Card Hobby) brought the company an investment income of about 9.49 million, a significant increase over the previous year.
Profit forecast and investment advice: We expect the company's net profit to be 670 million/780 million in 2024/2025, respectively, corresponding to 15.8/13.8 times PE, maintaining the purchase rating.
Risk warning
1. Multi-field layout and new business development fall short of expected risks;
2. The risk that game launch progress and streaming performance fall short of expectations;
2. Industry regulatory risks.