Event: The company announced its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 1,329 billion yuan, -19.84% year-on-year, net profit to mother of 169 million yuan, or -23.81% year-on-year, net profit after deducting non-attributable net profit of 161 million yuan, or -26.55% year-on-year. 2023Q4, the company achieved revenue of 247 million yuan, -48.13% year on year, net profit attributable to mother of 10 million yuan, -130.00% year on year, net profit after deducting non-attributable net profit of -013 million yuan, -144.71% year on year. With 2024Q1, the company achieved revenue of 255 million yuan, -40.96% year on year, net profit to mother of 0.14 million yuan, -80.63% year on year, net profit excluding net profit of 10 million yuan, or -86.04% year on year. A cash dividend of 0.35 yuan (tax included) is distributed for every 10 shares, for a total cash dividend of 171.41 million yuan.
A variety of products are expected to be launched within the year, and there are plenty of reserves for subsequent products. The company has formed a mature IP operating model, and IP games such as “Three Kingdoms 2017,” “Three Kingdoms Strategic Edition,” and “True Three Kingdoms Warriors” continue to contribute profits during the mature period of operation. Overseas, Paras Studio already has mature localization service capabilities. Nine new games were signed in 2023, and the key project “Legend of Living Heroes” is scheduled to be launched in 2024Q2. Judging from the development progress and subsequent product reserves, “Star Wings” was officially launched on April 18, and “Age of Discovery: Sea Overlord” continues to advance. “Dynasty Warriors 8” is expected to undergo player testing and additional content and depth in 2024, while also stocking up on various games, including “Swords and Knights” (an S+ multi-terminal adventure card RPG mobile game) and “Zero Domain Fantasy” (a new style national style card with myths and legends as a background, and plans to launch a mini program version).
The AI+ strategy is showing results, and the AI music field is making impressive progress. In 2023, the company established an AI innovation laboratory, and AI technology was implemented in various business segments of the company. The “Give My Mac” app has launched an AI virtual person (AI singer) and AI cover function. In the future, AI will open up virtual human creation, and will also incorporate self-developed party games, interactive barrage games, mobile games, entertainers/anchors, etc. In fields such as Wensheng Audio, the company is currently investigating the direction of AI music creation, including AI lyrics, music writing, AI album covers, AI music MVs, etc. It is recommended to continue to monitor the company's AI music progress.
Investment advice: We expect the company to achieve revenue of 1,586/19.00/21.09 billion yuan in 2024-2026, +19.30%/+19.83%/+11.01% year-on-year, and achieve net profit of 1.98/2.49/ 309 million yuan, +16.82%/+26.09%/+23.78% year-on-year, corresponding PE is 27.87X/22.11X/17.86X, maintaining a “buy” rating.
Risk warning: New product launches fall short of expectations, AI progress falls short of expectations, policy risks