Incident: The company announced 24H1 results. The company achieved operating income of 1.96 billion yuan, a year-on-year decrease of 16.57%; realized net profit of 0.518 billion yuan, a year-on-year decrease of 23.39%; of these, 24Q2 achieved operating income of 1.032 billion yuan, a year-on-year decrease of 14.29% and an increase of 11.34% month-on-month; realized net profit of 0.264 billion yuan, a year-on-year decrease of 28.41% and a month-on-month increase of 4.38%. In addition, the company announced an interim dividend of 45 yuan (tax included) for every 10 shares, for a total dividend of 0.323 billion yuan, with a dividend ratio of 62%.

The main game gradually stabilized, and the year-on-year decline in the company's revenue narrowed significantly. In 24Q2, the company's revenue fell 14.29% year on year, and the decline narrowed by 4.68 pct month on month. The company's revenue mainly comes from self-developed products “Enquiry” mobile game, “Eng Dow Mobile Game” and “Easy to Know (Mainland Edition)”. Among them, the “Enquiry” mobile game 24H1 sales volume was 0.656 billion yuan, an increase of 16.31% year on year; “Qindao Mobile Game” sales volume was 1.155 billion yuan, down 14.66% year on year; “Easy Thinking (Mainland Edition)” sales volume was 0.311 billion yuan, down 54.81% year on year, but the decline narrowed somewhat from month to month. The company's main game is gradually stabilizing, which is expected to drive the company's operating performance to pick up.

Product reserves are abundant, and new games are launched one after another, which is expected to contribute to increased performance. Currently, many of the company's self-developed and proxy games have received version numbers. Among them, the self-developed game (1) is the immortal game “Asking the Sword” (code number M72). The main distribution areas are mainland China, Hong Kong, Macao, Taiwan, and Southeast Asia. It is recommended to pay attention to the progress of subsequent tests; (2) the hanging MMO “Legend of the Sword and Sword (code M88)” began paid testing in August and is expected to be officially launched on 25H1; (3) The Western Fantasy-themed placement category “Code M11” is scheduled to be distributed globally and has applied for a domestic version. The proxy game (1) Guofeng RPG “Fengshen Fantasy World” is scheduled for October 18; (2) the card+light SLG game “Hundred Million Lightyears” was tested in July; (3) the urban horror suspense strategy “Echo of Vision” and the simulated management+RPG development “Wangdu Genesis Record” were tested in June/July, respectively, and are all expected to be launched in the 24H2 public beta. We believe that the company's game reserves are quite rich, and the launch of key products such as “The Legend of the Sword” and “Asking Sword for Eternity” is expected to drive the company's performance back to growth.

Investment advice: In 2024-2026, we expect the company to achieve revenue of 4.219/4.518/4.749 billion yuan; net profit to mother of 1.08/1.189/1.282 billion yuan; EPS 14.99/16.51/17.80 yuan. The corresponding PE was 12.5/11.3/10.5 times, respectively. The company's main game gradually stabilized, and the reserves of new games were abundant. The launch of key self-developed products one after another is expected to drive a recovery in performance and maintain a “buy” rating.

Risk warning: industry regulatory risks; game production falls short of expectations; game launch process falls short of expectations; version distribution falls short of expectations.