Description of the event

Perfect World disclosed 24Q1 results. In 24Q1, the company achieved revenue of 1,329 billion yuan (-0.19% YoY), net loss of 30 million yuan to mother, deducted non-net loss of 158 million, and changed from profit to loss over the previous year.

Incident comments

Revenue side: Revenue declined due to factors such as a natural decline in game flow and product launch cycles. Game business: The company's Q1 mobile game performance is expected to be steady, and some mobile games have declined. Since the company Q1 is only “One Punch Man:

New products such as “World” (Overseas) were launched. Overall, there were few new products, and the flow rate of games in stock declined due to the life cycle. The game business's Q1 revenue was -23.8% YoY/-4.9% YoY to 1,285 billion yuan.

Film and television business: Due to the small number of film and television productions broadcast and confirmed revenue in Q1, the film and television business Q1 revenue was -82.2% YoY/-85.2% month-on-month to $35 million.

Expenses and profit side: Expenses generated by personnel optimization etc. put pressure on performance, and asset disposal, etc., partially affected the company's personnel optimization and increased company expenses in stages. 24Q1 management expenses increased by about 80 million to 260 million yuan month-on-month (+38.5% month-on-month, +43.0%). Overall sales expenses and R&D expenses changed little, but the overall cost ratio increased significantly due to declining revenue. Affected by this, the company's 24Q1 game business achieved a non-net loss of about 99 million (23Q1 deducted non-net profit of 278 million/23Q4 deducted non-net loss of 185 million yuan).

Universal Pictures's asset disposal affected the Q1 film and television business performance. The company's Q1 film and television business achieved net profit of about 120 million yuan to mother and deducted non-net loss of about 17.28 million yuan.

In 2024, we will enter the launch cycle of key new games. Focus on the increase in performance brought about by the launch of new games, and self-developed products in key innovative categories are progressing actively. Since 24Q2, key self-developed new tours have been launched one after another, including:

1) “Persona: The Phantom of the Night” was released in domestic public beta on April 12 and ranked 8th in the iOS game bestseller list. It was officially launched in Hong Kong, Macao, Taiwan and South Korea on April 18;

2) “Immortals 2” starts its first test on 4.23, and “Light Ink Cloud Township” starts testing on 5.7. In addition, it is expected that “Code Name Barbarian” and others will begin a new round of testing in the near future;

3) “One Punch Man: World” and “Diversive Million King Arthur: Ring” have recently been approved. In addition, there are reserves such as “World of Immortals,” “Land of Demons (Overseas),” “Code Name Barbarian,” and “Light Ink Cloud Village.” These products are expected to be launched one after another.

Various self-developed games such as “Immortal 2,” “Code Name New World,” “Code Name YH,” “Code Z,” and “Dragon Cage” are being actively developed. Mini-games, live action interactive video games, etc. are also being developed. The products under development cover a variety of topics and innovative categories. The company has a rich reserve of products. 2024 will gradually usher in the launch cycle of key products, focusing on the flexibility of performance brought about by the launch of new games.

Profit forecast and investment advice: We expect the company's net profit to be 950 million/1.19 billion in 2024/2025, respectively, corresponding to 20.4/16.3 times PE, maintaining the purchase rating.

Risk warning

1. Risk that product version approval, launch progress and flow performance fall short of expectations; 2. Industry regulatory risks.