Incidents:
The company released its 2024 semi-annual report. 24H1 achieved operating income of 2.555 billion yuan, an increase of 29.28% year on year; achieved net profit due to mother 0.809 billion yuan, up 11.72% year on year; realized deducted non-net profit of 0.801 billion yuan, up 18.55% year on year; and realized cash flow from operating activities of 0.923 billion yuan, an increase of 63.17% year on year.
Looking at a single quarter, Q2 achieved operating income of 1.248 billion yuan, a year-on-year increase of 22.13%; realized net profit to mother of 0.383 billion yuan, a year-on-year decrease of 11.85%; realized deducted non-net profit of 0.377 billion yuan, a year-on-year decrease of 3.3%; and realized cash flow from operating activities of 0.59 billion yuan, an increase of 218.92% year on year.
At the same time, a cash dividend of 1 yuan (tax included) will be distributed to all shareholders for every 10 shares, 0 bonus shares (tax included), and 0 bonus shares (tax included) will be distributed to all shareholders based on the total share capital registered on the share registration date when equity distribution was implemented in the 2024 semiannual period.
Comment:
Cash flow from operating activities increased dramatically, and net of non-profit increased rapidly. Looking at the breakdown, 24H1 operating costs were 0.46 billion yuan, up 45.77% year on year, mainly due to an increase in external share expenses; sales expenses were 0.957 billion, up 103.92% year on year, mainly due to an increase in marketing expenses; and management expenses of 0.094 billion, a decrease of 34.21% year on year, mainly due to a decrease in amortization of employee shareholding and equity incentive expenses.
Actively lay out applet games and overseas games to seize the industry's dividend period. The company's applet game business layout was relatively early. After “Battle of Angels” and “The New Legend of the Dragon” went live in 2022, they all launched applet versions. After the launch of the “Legend of Sword and Fairy: A New Beginning” applet version in the second half of 2023, it remained stable in the top ten WeChat Mini Program Game Bestsellers and Popularity Lists; it won the 10th Game Industry Gold Award for Outstanding Product of the Year 2023. “Monster League”, which was newly released in 2024, entered the top ten best-selling applet games. 24H1's overseas revenue was 0.126 billion yuan, up 334.95% year on year. In the second half of the year, it plans to release “Battle of Angels” in Thailand and Indonesia; release “Monster Link” in countries and regions such as Japan, Europe, America, Hong Kong, Macao and Taiwan; release “OVERLORD” in South Korea; and “Legend of Sword and Fairy: A New Beginning” in Singapore, Malaysia, Vietnam, Hong Kong, Macao, Taiwan and other countries and regions on July 21.
We have plenty of products in stock. Self-developed products in the inventory include, but are not limited to: “Doulo Continent: Legend of Demon Slayer”, “Code Name: Tomb Raider” (pre-order began in early August), “Nazarek: Rise”, “About My Reincarnation as a Slime: New World” (beta on August 28), “Three Kingdoms: The World Returns”, “Code Name: Nobunaga”, “Code Name: DR”, “Baigong Ling”, “Bleach: Millennium Blood Battle”, and “Altman” authorized 3D action for the global market The game is in development. In addition, there are many game products in stock, such as “Legend of Dragon Dragon”, “Legend of Liangshan Mountain”, “Eternity: A Teenager Chasing Dreams”, “Journey to a Hidden Mountain Residence”, and “Mountain and Sea Floating Dreams”. In terms of agency products, the company expects to release “Taishang Titian Volume”, “Wacky Chicken”, “Awakening of Heroes”, and “Code Name: MYX” in the future.
Emphasis is placed on R&D, and the “business intention” model for independent research and development has been applied to actual R&D scenarios. During the reporting period, the company invested 0.228 billion yuan in R&D, accounting for 8.94% of revenue. In 2023, the company's self-developed “figurative” model has been applied to actual R&D scenarios. The “shape and meaning” model focuses on the application of game scenarios, trains it based on the cooperative experience of various profitable products and multiple IPs, directly connects with actual game development needs, and successfully achieves significant efficiency gains in the development of multiple projects. “Form” mainly has two major functions: “shape” and “meaning”. The former provides image generation capabilities, while the latter focuses on understanding and processing text content. “Form” uses a different technical path from common comprehensive AIGC tools, combines the company's experience and understanding in the field of game development, and focuses on outputting content “right out of the box”, so it is closer to actual R&D needs.
Maintain a “Highly Recommended” investment rating. Considering the month-on-month increase in Q2 marketing expenses due to the abundance of the company's subsequent reserve products, we expect the company's 24-26 operating income to be 5.507/6.647/7.843 billion yuan, respectively, with year-on-year growth rates of 28%/21%/18%, respectively; net profit to mother for 24-26 will be 1.709/2.031/2.407 billion yuan, up 17%/19% year-on-year, corresponding to current stock price-earnings ratios of 11.0/9.3/7.8 times, respectively, to maintain “highly recommended” Investment ratings.
Risk warning: New game launches fall short of expectations, rising purchase costs, R&D progress falling short of expected risks, etc.