The self-developed placement game “Let's Go Muffin” has basically remained in the top ten iOS bestsellers since the launch of the Hong Kong and Macau Taiwan Service and National Service, and is expected to contribute a major increase in 2024 results. Domestic edition distribution is stable, there are many summer blockbusters, and TapTap platform activity and revenue are expected to maintain a relatively rapid growth rate. We raised our profit forecast for Xindong and maintained our buying rating.
Key points to support ratings
“Let's Go Muffin” performed well and is expected to continue to contribute to performance. On May 15, 2024, the self-developed placement game “Let's Go Muffin” was officially launched in the national service. The iOS bestseller ranking basically remained in the top ten, reaching fourth place. The product was launched in Hong Kong, Macao and Taiwan on January 24, 2024. It remained in the top ten best sellers for the first three months, and reached the top of the three best-selling lists at the same time. According to the game teahouse, “Let's Go Muffin” is a work of Team MEKA. The team represents the casual placement game “RO Ragnarok: Play Polly Every Day”, which was launched in 2016, and has extensive experience in the placement category. “Let's Go Muffin” adds MMO elements to the original mature placement gameplay, and enhances the game's playability, sense of belonging, and user stickiness through teamwork. We expect this product to continue to contribute to the performance of the heart in the medium to long term.
Stock products have performed steadily, and two important reserves have been issued. Xindong's top five revenue contributors in 2023 are “Sausage Party,” “Torchlight: Infinite,” “Ragnarok M,” “Endless Urara,” and “Immortal Road HD Remake.” Among them, “Sausage Party” had an average ranking of around 100 iOS bestsellers over the past year, which is quite stable. The company currently reserves four games. Among them, “Heartbeat Town” and “Ether Restart Day” have obtained version numbers. “Heartbeat Town” has opened App Store reservations on May 13, and is expected to launch on July 17.
Versions are distributed steadily, and summer products are expected to drive TapTap's revenue growth. Since 2023, the number of domestic editions distributed per month has remained stable at over 85. It is expected that major mobile games will be launched intensively in 2024, including Tencent's “Need for Speed: Assemble” and “Breaking Dawn”, NetEase's “16 Sounds of Yan Yun”, “Seven Day World”, and “Eternity” mobile games, Miha Tour's “Desperate Zone Zero”, and Perfect World “The Immortal 2”. TapTap user activity and advertising revenue are expected to grow rapidly.
The advantages of the zero-split model are highlighted, and exclusive content drives traffic growth. On June 19, 2024, Tencent's “Dungeons and Warriors: Origins” announced that the game will no longer be available on some Android app stores. This incident further validates the current trend of the game industry's bargaining power leaning towards high-quality content. TapTap is expected to benefit from this development trend and strengthen its competitive advantage through the provision of high-quality content and a zero-channel segmentation model. Furthermore, “Let's Go Muffin” performed well as an exclusive game on the TapTap platform, and is expected to drive platform traffic growth.
valuations
The company's new products have performed well and have been sustainable since 2024; TapTap is expected to benefit from the intensive launch of summer blockbusters in the short term, and the long-term expectation is to benefit from increased bargaining power on the content side. We raised 2024/25/26 net profit to $538/6.90/827 million yuan, corresponding PE was 15.18/11.82/9.87 times, maintaining the purchase rating.
The main risks faced by ratings
Game regulation exceeded expectations; macroeconomic decline; new game performance fell short of expectations.