Key points of investment
Incident: In 2023, the company achieved operating income of 4.185 billion yuan, -19.02%; net profit to mother of 1,125 billion yuan, or -22.98% year-on-year; net profit after deducting non-return to mother of 1,119 billion yuan, or -23.79% of the physical use ratio. In Q1 '24, the company achieved revenue of 927 million yuan, -18.97%; net profit to mother was 253 million yuan, -17.35% year over year; net profit after deducting non-return to mother was 198 million yuan, -29.54% year over year. ;
The core products developed steadily, and the overseas business began to gain strength. The company's core products “Ask Me Mobile Games” and “Easy Thinking” both declined in revenue and profit in '23. After a series of anniversaries and other events this year, the revenue of “Ask Me Mobile Game” and “One Thought at a Time” rebounded in Q1 compared to the previous year, and data such as the retention rate and length of time spent online for core products were steady. The overseas business achieved revenue of 139 million yuan in Q1, +146.48% year-on-year, thanks to the overseas distribution of “Fly Dragon Rider (Overseas Edition)” and “Monster Never Cry (European and American Edition)”, and “Outpost: Infinity Siege”'s contribution to the launch of the international version of Steam.
Subsequent reserve products are abundant, and new products are expected to contribute more. The company released “Super Evolution Story 2” and “The Origin of Pikatang's Dream” in December '23, “The Immortal Family” and “A Thousand Food Houses in Shenzhou” in Q1, and released “ONE PIECE: Dream Guide” on April 1, which is expected to contribute incremental revenue and profit in the future. In addition, the company's agent product reserves include products such as “One Hundred Million Light Years”, “Fengshen Fantasy World”, and “Wangdu Genesis Record”, which are expected to be launched within 24 years. The company's self-developed product reserves include “The Legend of Staff and Sword” (formerly “Code M88”), “Code M72”, “Code M11”, and “The Strongest Castle”.
Profit forecasts and investment recommendations. We continue to be optimistic about the rich reserves of subsequent products, but considering that the company is still under pressure on revenue and profit in the short term, we forecast that the company's revenue for 24-26 will be 41.6/46.8/5.12 billion yuan, and the corresponding YOY will be -0.5%/12.5%/9.4%. Net profit attributable to mother for 24-26 was $11.0/12.5/1.38 billion, and the corresponding YOY was -2.2%/13.4%/10.6%. Maintain a “buy” rating.
Risk warning: Product launches fall short of expectations, overseas sales fall short of expectations, industry competition intensifies.