Incidents:
The company released its 2024 quarterly report: operating income of 4.75 billion yuan, an increase of 26.17% year on year; net profit to mother was 616 million yuan, down 20.45% year on year.
Short-term performance is under pressure, mainly due to pre-sales expenses
On the revenue side, the company launched a number of new games since 23Q4. Of these, the three mini game products all ranked at the top of the WeChat Mini Game Bestseller List, driving 24Q1 revenue to achieve a high growth rate, with a year-on-year increase of 26.17%. On the profit side, with the centralized launch of new games, the company simultaneously increased its purchasing volume, resulting in 23Q4 and 24Q1 sales expense ratios reaching 60.6%/60.9% respectively, an increase of 6.7/9.9pct over the previous year, which further dragged down profit margins in the short term. After 24Q2, profits are expected to be further released as the company's new tours gradually enter the purchase volume recovery period.
The leading position of mini-games is stable, and the reserves of new games are abundant
In 2024, the company is expected to continue to benefit from the market growth brought about by games going overseas and mini-games. In terms of overseas travel, the company's leading product “Puzzles & Survival” has performed steadily since its launch for more than three years, and still ranked 8th in the overseas mobile game revenue list in March '24. In terms of mini-games, the company has successively launched four leading mini game products in recent years: “The Search for a Thousand,” “Soul Prologue,” “The Unknown Man,” and “Spirit Sword Master”. On April 28, they ranked 1/19/10/6 respectively on the WeChat Mini Game Bestseller List, continuing to consolidate its leading position.
In terms of product reserves, the company currently has 40+ self-developed or proxy mobile games, including “Code Name Dora MMO,” “Time Grocery Store,” and “The Son-in-law,” etc., and it is expected that the new game will continue to contribute to the increase in performance after the launch.
Increased frequency of dividends and positive returns to shareholders
The company received a cash dividend proposal from the actual controller and chairman: 24Q1 plans to distribute a cash dividend of 2.10 yuan (tax included) for every 10 shares. It plans to distribute a total of 466 million yuan, accounting for 76% of the current net profit to mother, in line with the 2024 quarterly dividend proposal previously issued by the company. In the future, the company is expected to maintain the frequency of quarterly dividends, showing management's confidence in the company's development while actively giving back to shareholders.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 192/215/23.8 billion yuan, with year-on-year growth rates of 16%/12%/11%, respectively, and net profit to mother of 30.4/35.3/4.05 billion yuan respectively, with year-on-year growth rates of 14%/16%/15%, EPS 1.37/1.59/1.83 yuan/share, respectively, and a 3-year CAGR of 15.1%. In view of the company's growth potential in mini-games and overseas travel, based on comparable company valuations, we gave the company 16 times PE in 2024, with a target price of 22 yuan, maintaining a “buy” rating.
Risk warning: version policy, domestic and overseas competition pattern, risk that the company's game flow falls short of expectations.