Event: The company announced its 2024 quarterly report. With 2024Q1, the company achieved revenue of 927 million yuan, -18.97% year-on-year, net profit to mother of 253 million yuan, -17.35% year-on-year, and net profit after deducting non-return to mother of 198 million yuan, or -29.45% year-on-year.
“Ask Me” and “One Thought Is Easy” 2024Q1 sales rebounded month-on-month, driving revenue growth in the first quarter. 2024Q1 achieved revenue of 927 million yuan, -18.97% YoY and +5.60% YoY. The year-on-year decline in revenue was mainly due to: 1) the revenue and profit of “Enquiry Mobile Game”, “Obi Island: Dream Country” all decreased to varying degrees year over year; 2) This was partially offset by overseas business growth. 2024Q1's overseas business achieved revenue of 139 million yuan, +146.68% over the same period last year. Q1 released “Fly Bar Dragon Knight (Overseas Edition)” and “Monster Never Cry (European and American version)” overseas, and “Outpost: Infinity Siege” was launched on the Steam international version . The month-on-month increase in revenue was mainly due to:
1) Revenue from the 2024Q1 “Enquiry” mobile game increased month-on-month; 2) “Enquiry Mobile Game” launched the New Year's service and the “Happy Home” anniversary event led to a month-on-month increase in revenue; 3) In addition, new games such as “Flying Dragon Rider (Mainland Edition)”, “Super Evolution Story 2”, “The Origin of Pikatang's Dream”, “The Immortal Family”, and “Shenzhou Thousand Foods” contributed a certain amount of incremental growth. 2024Q1's deferred revenue was $529 million, an increase of $88 million over $441 million at the end of the previous year.
Q1 Gross margin remained steady, and sales expenses increased due to the promotion of new games. 2024Q1's gross margin was 89.24%, +0.96pct year over year and -0.42pct month-on-month, and remained steady. The sales cost rate of 2024Q1 was 31.67%, +0.70pct year over year, and +5.81 pct month-on-month. Mainly, several new products were launched in Q1, and the early release investment was large. At the same time, “Ask Mobile Games” and “Easy Thinking (Mainland Edition)” launched New Year's clothing and anniversary events respectively, and distribution costs increased.
Product reserves are abundant, and pay attention to the pace of new product launches. In terms of product reserves, the self-developed product “Legend of the Sword and Sword (code M88)” is expected to be launched in the first half of 2025, and is expected to be launched on behalf of “Rhythm Trajectory” (expected to be launched on April 29), “100 Million Light Years” (2024H2), “Fengshen Fantasy World” (2024H2), “Wangdu Genesis Record” (2024H2), and “Shenzhou Thousand Food Restaurant (overseas version)”.
At the same time, it also has product reserves such as “Code M72,” “The Strongest Castle,” “Code M11,” and “Lost Castle 2.”
Investment advice: We expect the company to achieve revenue of 38.24/42.83/4.711 billion yuan in 2024-2026, -8.63%/+12.00%/10.00%, net profit to mother of 10.27/12.27/1,548 billion yuan, -8.75%/+19.49%/+26.17%, corresponding PE of 14.05X/11.77X/9.32X, maintaining a “buy” rating.
Risk warning: New product launches fall short of expectations, policy risks, increased market competition