Key points of investment
The two main businesses of computer+gaming are progressing hand in hand, and performance is growing steadily. The company was founded in 2001, engaged in ICT operation and management, and later merged and acquired Tianjin Shell Game to form two major business clusters. Among them, the game business focused on the global market, focusing on SLG mobile game development and shipping overseas. The computer business focused on ICT operation management, the Internet of Things and communications, and expanded artificial intelligence and big data businesses such as intelligent collection and smart telemarketing to explore new growth points. In 2023 and 2024Q1, the company achieved revenue of $59.62/1,488 billion, yoy +24.06%/22.79%, net profit to mother of 887/295 million yuan, yoy +63.84%/65.62%. Under high management efficiency, human efficiency improved significantly. In 2020-2023, the company's per capita revenue CAGR was 8%, and per capita profit CAGR was 24%.
Game business: SLG has excellent mobile game development and operation capabilities, and profits from old games have been steadily released, and new game launches are expected to contribute to growth. The company's game business entity, Tianjin Kemu, was founded in 2009. After the 2009-2012 stand-alone and 2013-2016 category exploration phase, it focused on SLG mobile games and achieved outstanding results. In 2016-2023, Tianjin Shell had a revenue CAGR of 48% and a net profit CAGR of 27%. Of these, in 2023, it achieved revenue of 4.498 billion yuan, yoy +26.52%, and net profit of 1.05 billion yuan, yoy +44.46%, and a net profit margin of 24.56%. YOY+3.05pct The company's game business profits continue to increase, mainly due to the fact that the core games “Warand Order” and “Age of Origins” maintain a higher frequency of content updates than competing products to meet players' demand for content consumption. Long-life cycle throughput is excellent. Among them, “WAO” sales have stabilized, and “AOO” revenue is still growing, and profits are expected to be further released. Looking ahead, the company's new games “Code DL”, “Code LOA”, etc. are expected to be launched in overseas regions within 2024. We believe that “WAO” and “AOO” have successively verified the company's experience accumulation and gameplay research ability at the SLG circuit, and are actively monitoring the launch and commissioning of the new game.
Computer business: ICT operations and maintenance are expected to pick up steadily, and AI and innovative businesses will grow in new volume. The company's computer business provides B-side customers with digital products and solutions, including four major sectors: ICT operation management, Internet of Things and communications, artificial intelligence and big data, and innovative business. At the beginning of 2023, the company used its own NLP technology to launch the artificial intelligence collection solution “Taiyue Xiaohui” platform, which was later upgraded to the “Taiyue Smart Call” platform, covering the fields of smart telemarketing and intelligent collection. In 2022 to 2023, the AI business entity Dingfu Intelligence achieved revenue of 0.67/ 143 million yuan, a year-on-year increase of 54%/114%, and net profit of -0.66 to 63 million yuan. The losses were mainly due to the impact of equity incentive expenses and R&D investment. It is optimistic that subsequent business will continue to grow. At the same time, with the end of amortization of equity incentive expenses, Dingfu Intelligence is expected to achieve profits, driving the flexible release of computer business profits.
Profit forecast and investment rating: We expect the company to achieve revenue of 66.81, 77.61, and 8.688 billion yuan in 2024-2026, up 12.05%, 16.16%, 11.95% year on year, and net profit of 11.51, 12.69 billion yuan, and 14.17% year on year. Using the segmented valuation method, we expect the game business to contribute 1,324 billion yuan in net profit in 2024, corresponding to a market value of 19.9 billion yuan, the computer business contributing revenue of 1,685 billion yuan, and giving 2.50 times PS, corresponding to a market value of 4.2 billion yuan. The total target market value is 24.1 billion yuan, corresponding to a target price of 12.27 yuan. This is the first coverage and a “buy” rating.
Risk warning: The long-term operation of the old network falls short of the expected risk, the new flow falls short of the expected risk, the computer business is unable to reverse the expected risk, and the risk of industry regulation