occurrences

The company released its 2023 annual report and 2024 quarterly report.

Comment:

Net profit increased significantly, and a high dividend rate returned to shareholders

In 2023, the company achieved operating income of 4.307 billion yuan, up 10.01% year on year; net profit to mother was 562 million yuan, up 61.37% year on year; net profit after deducting non-return to mother was 519 million yuan, an increase of 51.72% year on year.

The 24Q1 quarter achieved revenue of 982 million yuan, a year-on-year decrease of 17.38%; net profit to mother was 151 million yuan, a year-on-year decrease of 23.94%. The company announced the 2023 profit distribution plan. It plans to distribute cash dividends of RMB 9.00 (tax included) to all shareholders for every 10 shares, for a total cash dividend of 371 million yuan (tax included), accounting for 65.94% of the annual net profit to mother.

The game business maintained a high level of gross profit. Digital marketing grew steadily in 2023, and the company's game/digital marketing business achieved revenue of 12.26/1.912 billion yuan, up 1.94%/24.90% year-on-year respectively. The gross margin of the business was 96.01%/5.46%, respectively, and the game business maintained a high gross margin level. In the game business, the company adheres to the principle of “focus on quality products, integration of research and operation”. The new versions of the domestic games “Fishing at Your Fingertips” and “Fly the Sky” performed well. “Yao Ji Fishing 3D Edition” and “New Era of Fishing” were launched. Foreign game products declined slightly due to factors such as the international situation and privacy policies, and the overall game sector still maintained good profitability. The innovative marketing business maintains high-quality output, and the pioneering VTATM model helps multiple customers launch games and achieve good results.

The gross margin of the poker business increased significantly. The production expansion plan was carried out in an orderly manner in 2023. The company's playing card business achieved revenue of 1,090 billion yuan, a year-on-year decrease of 1.57%. The gross margin of the business was 26.56%, up 3.40 pcts from 2022, mainly due to the company adjusting the sales structure of the playing card business, reducing sales costs, and reasonably increasing product pricing. The company is actively promoting the “construction project for a production base with an annual output of 600 million playing cards”. The construction period is expected to be 3 years, and the production capacity after completion of the project will increase 80% compared to the current stage.

Investment advice and profit forecasting

The company's diversified business layout, improved game business product cycle, stable basic poker business, pro-cyclical recovery of digital marketing business, and new highlights in areas such as star cards and Pokémon cards. We expect the company's net profit to be 68/729/827 million yuan in 2024-2026, respectively, with EPS of 1.60/1.77/2.01 shares and PE of 16/14/13x, maintaining a “buy” rating.

Risk warning

The number of leading old games is rapidly declining, new game launches fall short of expectations, and industry policy risks.