occurrences
On April 30, 2024, the company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 4.307 billion yuan, an increase of 10.01% year on year; net profit to mother was 562 million yuan, up 61.37% year on year; net profit after deduction was 519 million yuan, up 51.72% year on year. 2024Q1 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%; net profit after deducting net income of 150 million yuan, a year-on-year decrease of 21.60%. On May 8, 2024, the company held nearly 10% of Nanjing Dumengmao's shares through Chengqi Technology.
Key points of investment
The game business is operating steadily, and the marketing business drives revenue growth. In terms of the game business, fishing games continued to be iteratively updated. The new versions of “Fishing at Your Fingertips” and “Fishing Boom” performed well, and “Yao Ji Fishing 3D Edition” and “New Era of Fishing” grew steadily after launch. Foreign games experienced a decline in performance due to factors such as the international situation, intense market competition, and changes in privacy policies, but the overall game maintained steady growth, achieving revenue of 1,226 billion yuan throughout the year. The gross profit margin was 96.01%, down 0.14pct year on year.
In terms of the playing card business, the company adjusted the sales structure, reduced sales costs, and reasonably increased product pricing in line with market conditions. In 2023, the poker business achieved revenue of 1,090 billion yuan, a year-on-year decrease of 1.57%, and gross margin of 26.56%, an increase of 3.40 pcts over the previous year.
At present, the company's production capacity of playing cards is already overloaded (current production capacity is 756 million decks, output is 974 million in 2021). The company is actively promoting the “600 million deck production base construction project”. After completion of the project, the production capacity of playing cards will increase by about 80%. At the same time, this project will further improve the level of production line intelligence, effectively improve production efficiency and reduce production costs. In terms of digital marketing, the company pioneered the VTATM model to help multiple customers launch new tours, and explored the “target-exclusion-modeling” three-step approach to reduce costs and increase efficiency. The digital marketing business achieved annual revenue of 1.912 billion yuan, an increase of 24.90% over the previous year, and a gross profit margin of 5.46%, an increase of 0.72 pct over the previous year. In terms of expenses, the game sector optimized the marketing strategy. Sales expenses decreased by 32.99% year on year, sales expenses rate was 7.40%, down 4.75pct year on year; due to amortization expenses of equity incentive plans, management expenses increased 26.30% year over year, and management expenses ratio was 6.69%, up 0.87 pct year on year.
Participate in the online whipped egg platform to expand the layout of the casual game category and enhance business collaboration in the game sector. According to information on business changes, Chengqi Technology, a wholly-owned subsidiary of the company, became a shareholder of Nanjing Dumengmao Network Technology Co., Ltd. on May 8, with a shareholding ratio of nearly 10%. Nanjing Dumengmao focuses on game development and operation. Its representative product “Every Day Loves Whipped Eggs” currently has more than 40 million registered users. According to Qimai data, the number of iOS downloads from January to May 2024 increased about 2 times over the same period last year. In recent years, the degree of penetration of whipped egg games among young people has increased significantly due to characteristics such as low threshold, short time consumption, and strong sociability, and the online whipped egg platform DAU has grown rapidly. “Every Day Loves Whipped Eggs”, as a platform for the early operation of online whipped egg games, combined with Yao Ji's operating experience in casual game categories such as fishing, chess, and cultivation, is expected to form a good collaboration with the company's original products and consolidate the company's long-term dominant position in the field of casual games.
Investment advice:
We expect the company to achieve operating income of 47.58/52.25/5.702 billion yuan in 24-26, net profit of 6.61/7.65/884 million yuan, and corresponding EPS of 1.61/1.86/2.14 yuan. According to the closing price on May 29, 2024, 24-26 will correspond to 14/12/10 times PE, respectively, to maintain a “buy” rating.
Risk warning:
Outflow performance falls short of expectations; market competition increases risk; risk of stricter policy regulation falls short of expected risk; project progress falls short of expected risk.