Incident Overview

The company released its 2024 quarterly report. During the reporting period, the company achieved operating income of 1,329 billion yuan, a year-on-year decrease of 30.19%; net profit attributable to shareholders of listed companies was a loss of 29.76 million yuan, compared to 241 million yuan in the same period last year; net profit not attributable to mother was a loss of 158 million yuan, or 204 million yuan for the same period last year.

The product cycle and personnel optimization expenses put pressure on game performance. During the reporting period when disposing of film and television assets to increase profits, the game business achieved operating income of 1,285 billion yuan, a year-on-year decrease of 23.8%, mainly due to the impact of the product life cycle and a natural decline in recharges for some games; the game business lost 115 million yuan, mainly due to personnel optimization costs. During the reporting period, the film and television business achieved revenue of 35 million yuan, a year-on-year decrease of 82.19%, mainly due to fewer film and television productions broadcast and confirmed revenue during the reporting period. The film and television business achieved net profit of 120 million yuan, after deducting non-net profit of -17.2762 million yuan. Non-recurring profit and loss mainly came from income related to the disposal of Universal Pictures film assets in the United States.

New products have performed well, and a new round of product cycles will begin

According to the company's April 19 customs investment activity record, the company's two-dimensional IP masterpiece “Persona: The Phantom of the Night” began public testing on both domestic PC and mobile platforms on April 12, 2024, and is loved by players. Pre-download the game reached the top of the App Store free list, ranking 8th on the iOS game bestseller list the day after the public beta; and simultaneously launched on both PC and mobile platforms in Korea, Hong Kong, Macao and Taiwan on April 18. The market performance was good. The Play Games free list is expected to boost Q2 performance. We are optimistic about the subsequent overseas sales performance of the new products, and the company is expected to continue to further cultivate the two-dimensional category.

The company's current reserves are progressing steadily, and many products have received edition numbers. According to the company's announcement, at present, the company's self-developed products “Persona: The Phantom of the Night”, “One Punch Man: World” and “Divergent Million King Arthur: Ring” have all obtained imported game versions. Among them, “One Punch Man: World” has been tested in many overseas countries and regions in February 2024; “Divergent Million King Arthur: Ring” has recently completed paid testing in Hong Kong, Macao and Taiwan. Player feedback is good; “Immortal 2” began testing on April 23, 2024, in addition, “Tamsui Yunxiang” and “Demon Shui Yunxiang” mobile game products “Immortal World” “Perfect New World (Perfect New) “World)” and others will actively carry out external tests according to the development progress, and various products such as “Demon Continent”, “Code Name New World”, “Code YH”, “Code Z”, “Ghost Cage”, “Code Name Barbarian”, and lightweight mini games are also being developed.

Investment advice

Referring to the company's product launch pace, we adjusted our previous profit forecast. We expect the company to achieve revenue of 93/102/10.9 billion yuan in 2024-2026 (93/113 billion yuan in the first half of 2024-2025), and realized net profit of 11/12/15 billion yuan (2024-2025 first period forecast is 12/2.1 billion yuan), and EPS of 0.54/0.62/0.76 yuan (2024-2025 forecast is 0.63/1.07 yuan), respectively. At the closing price of 10.19 yuan/share on April 29, 2024, PE was 19/16/14 times, respectively, maintaining the “gain” rating.

Risk warning

The pace of new game launches falls short of expectations; risk of preferential tax policies being cancelled; risk of brain drain.