Investment highlights:

The 8th anniversary of “Ask Mobile Games” led to a month-on-month increase in revenue and profit in 2024Q2. It plans to pay a dividend of 45 yuan for every 10 shares in the first half of 2024

① The company's 2024H1 revenue was 1.96 billion yuan, yoy -16.57%; net profit to mother was 0.518 billion yuan, yoy -23.39%; net profit not attributable to mother was 0.463 billion yuan, yoy -28.36%. The main reason for the year-on-year decline in revenue and profit in 2024H1 was the decline in sales and profits of old products such as “One Thought Happy” and “Obi Island”; the “Moore Manor” 2023Q2 cooperation expired and deferred revenue was no longer confirmed; the new products “Fly Dragon Rider”, “Super Evolution Story 2”, and “The Origin of Pikatang's Dream” began contributing to revenue and profit but were smaller; the 2024 new products “The Immortal Family”, “Shenzhou Thousand Foods” and “King of Sailing: Sailing Guide” are still unprofitable.

② The company's 2024Q2 revenue was 1.032 billion yuan, yoy -14.29%, qoq +11.34%, net profit to mother 0.264 billion yuan, yoy -28.41%, qoq +4.38%. The performance was in line with our expectations.

Net profit after deducting non-return to mother was 0.265 billion yuan, YOY -27.52%, and QoQ +33.67%. The month-on-month increase in revenue and profit in 2024Q2 was mainly due to the “Enquiry Mobile Game” 8th anniversary celebration. The month-on-month growth rate of net profit after deduction of non-return to mother was higher than the growth rate of net profit growth rate of 38.77 million yuan after Q1 confirmed the investment income of shares in Chengdu Yuxiang Repurchase Company.

③ 2024H1 plans to pay a dividend of 45 yuan for every 10 shares, with a dividend rate of 62.36%; 2024H1 repurchases a total of 0.24 million shares, a total repurchase of 0.045 billion yuan, and the total amount of 2024H1 repurchases and dividends is estimated at 0.368 billion yuan.

The core product performance was excellent during the activity period. The second half of the year was rich in reserve products. Pay attention to the second half of the year version update activities of old products and the testing and launch of reserve products

① The total turnover of the “Wantao” mobile game, and “Wantao Mobile Game” was 0.656/1.155/0.311 billion yuan, yoy +16.31%/-14.66%/-54.81%. The total turnover of the three games was 2.123 billion yuan, yoy -18.56%, and the total revenue of the three games 2024H1 contributed 68.17%, compared to -3.02pct for the full year of 2023, mainly due to the fact that old products such as “Wendao Mobile Game” and “Happy Journey” were affected by the natural downturn of water flow. At the same time, “Let's Fly, Dragon Knight” and “Let's Think Easy (European and American version)”, which were launched in 2023, contributed incremental revenue. During the anniversary event (“Enquiry Mobile Game” 2024Q2 anniversary, “Happy Thinking” 2024Q1 anniversary), old products all improved their rankings in the iOS game bestseller list, so keep an eye on subsequent major events and version updates.

② 2024H2-2025 reserves self-developed products “Asking Sword for Eternal Life”, “The Legend of the Sword”, “The Strongest Castle”, and “M11,” and reserves 6 proxy products. The product cycle is about to begin.

Profit forecast and investment rating: The company's old products “Enquiry Mobile Game” and “One Thought at a Time” have reached maturity, and profits may continue to be under pressure in the second half of the year. Considering the uncertainty of product testing and launch, we adjusted the profit forecast. We expect revenue for 2024-2026 to 3.761/4.437/4.903 billion yuan, respectively, and net profit to mother of 0.973/1.179/1.343 billion yuan respectively. EPS is 13.51/16.37/18.65 yuan respectively, and the corresponding PE is 13/11/9x

We are still optimistic about the company's R&D and innovation capabilities and vitality under the “run fast” model. The company will raise internal project requirements and respond to market changes and layout content, which is expected to usher in a new cycle of self-development products and growth points overseas, and maintain a “buy” rating.

Risk warning: intensifying market competition, falling short of expectations in obtaining versions, exchange rate fluctuations, falling short of expectations for new products, rising traffic costs, policy supervision, falling short of expectations in the life cycle of old products, loss of core talent, changes in player preferences, corporate governance/asset depreciation/lifting of bans and holdings, changes in market style, and downward movement of industry valuation centers, etc.