Key points of investment
Incident: In 2023, the company achieved revenue of 4.31 billion yuan, yoy +10.0%; net profit to mother of 560 million yuan, yoy +61.4%. 2024Q1, the company achieved revenue of 980 million yuan, yoy -17.4%; net profit to mother of 150 million yuan, yoy -24.0%.
Revenue is growing steadily, and increased production of playing cards and new game versions are expected to boost performance. 1) Playing card business: In 2023, the poker business achieved revenue of 1.09 billion yuan, yoy -1.6%; by adjusting the sales structure and increasing product pricing, the gross margin of the poker business reached 26.6%, an increase of 3.4 pct over the previous year. In 2024, the company will actively promote the “construction project of a production base with an annual output of 600 million playing cards” to improve production efficiency and expand production scale. 2) Mobile game business: The game business achieved revenue of 1.23 billion yuan, yoy +1.94%. Despite the decline in overseas game business performance due to market competition, the overall game sector maintained good profitability. The gross margin reached 96.01%, a year-on-year decrease of 0.14 pct. In 2024, the company will continue to promote the development of new games, develop new versions of existing mobile game products, extend the life cycle of products, and find growth points in overseas game markets, which is expected to drive performance growth.
The company has many years of experience in the marketing field, and the digital marketing business contributes to revenue growth. In 2023, the company's digital marketing business achieved revenue of 1.91 billion yuan, yoy +24.9%. The company is a long-term ecological partner of Massive Engine, providing high-value marketing services to advertisers; in addition, through massive cloud mapping tools, the company pioneered the VTATM model, which provides a methodology for marketing planning for game customers at the launch stage of new games. Based on this model, the company helped multiple customers launch new games and achieved good results. In the future, the company will continue to cultivate the digital marketing circuit, work with a huge number of engines to output more high-quality marketing cases, and open up room for marketing business growth.
Gross margin declined slightly year over year, mainly due to changes in revenue structure. In 2023, the company's gross margin was 37.6%, yoy-1.1pct, mainly due to changes in revenue structure. The gross profit of the digital marketing business was low, and the revenue share increased from 39.1% in '22 to 44.4% in '23; sales/management/R&D expenses were 7.4%/6.7%/5.6%, yoy-4.8/+0.9/-1.1 pct, respectively. The decline in sales expenses was mainly due to optimized marketing strategies in the gaming sector. In 24Q1, the company's sales expenses were 71.597 million yuan, yoy +55.0%. Promotion expenses increased mainly due to adjustments in the operating model of the overseas game business.
Profit forecast and investment rating: The company's net profit grew rapidly in 23, but considering the Q1 performance and the increase in overseas promotion expenses due to the adjustment of the operating model, we adjusted the company's net profit from 2024-2025 from 83/93 million yuan to 70/790 million yuan. The estimated net profit to the mother in 2026 is 870 million yuan. The current stock price corresponds to the 2024-2026 PE is 14/13/12 times, maintaining the “buy” rating.
Risk warning: game regulation risk, intellectual property protection risk, overseas market policy risk.