Core views

The company's 24H1 revenue was 9.23 billion yuan (yoy +19%). Revenue growth was mainly due to the company's good performance in mobile games such as “Seek a Thousand,” “Domination,” and “Soul Prologue”. By business, the company's mobile games were 9 billion yuan (yoy +20%) and web games were 0.21 billion yuan (yoy -15.5%); by region, the company's domestic revenue was 6.33 billion yuan (yoy +33.8%) and overseas revenue was 2.9 billion yuan (yoy -4.3%); the company's net profit performance to mother was steady, at 1.26 billion yuan (yoy +3.1%); the basic EPS was 0.57 yuan/share (yoy) (yoy) +3.6%). We believe that the company has a rich pipeline of diversified reserves in the future. With the three-wheel drive of “game going overseas+multi-category layout+mini game”, it is expected that it will steadily survive the industry cycle and achieve long-term healthy development.

Brief review

The company released the 24H1 performance report, and the company's revenue performance was outstanding. The company's 24H1 revenue was 9.23 billion yuan (yoy +19%). Revenue growth was mainly due to the company's good performance in mobile games such as “Seek a Thousand,” “Domination,” and “Soul Prologue”. By business, the company's mobile games were 9 billion yuan (yoy +20%) and web games were 0.21 billion yuan (yoy -15.5%); by region, the company's domestic revenue was 6.33 billion yuan (yoy +33.8%) and overseas revenue was 2.9 billion yuan (yoy -4.3%); the company's net profit performance to mother was steady, at 1.26 billion yuan (yoy +3.1%); the basic EPS was 0.57 yuan/share (yoy) (yoy) +3.6%).

The scale of the game industry is growing steadily, and the same increase in version numbers has led to an improvement in supply. According to the “China Game Industry Report for January-June 2024” issued by the Game Publishing Working Committee of the China Audiovisual and Digital Publishing Association, China's game industry maintained steady growth in the first half of this year. The actual sales revenue of the domestic game market was 147.267 billion yuan, yoy +2.08%. In terms of overseas markets, in the first half of the year, China's self-developed games earned 8.554 billion US dollars, yoy +4.24%. Furthermore, the number of domestic applet games rose, and many products with different categories, themes, and gameplay were in full bloom to meet users' lighter and more diverse entertainment needs. The “Report” shows that in the first half of this year, applet mobile game revenue was 16.603 billion yuan, yoy +60.5%. On the supply side, the abundance of supply in the game industry is expected to increase. From January to July 2024, the number of domestic game versions distributed was (115/111/107/95/96/104/105 models). The pace of version distribution improved significantly over the same period last year, and the abundance of domestic game supply is expected to increase dramatically in the future. In terms of imported versions, the cumulative number of imported editions issued since this year was 75, and the number has also increased dramatically (98 models were distributed in the full year of '23; a total of 27 models were distributed before August '23).

High dividends+lower valuations, and the company's diversified layout is expected to cross the cycle. According to financial reports, the company plans to distribute a cash dividend of 2.1 yuan (tax included) to all shareholders for every 10 shares. The company's current valuation corresponds to Wind's 24-25 consistent PE expectations of 9.1 and 8.1X, respectively. Since this year, the company has launched many new products such as “Time Grocery”, “Legend of Heroes of the Three Kingdoms”, “Mecha Domination”, “Primal Conquest: Dino Era”, and “Yes Your Highness.” Currently, the company has a rich stock of products in MMORPGs, SLG, cards, simulation management, etc., covering diverse themes such as Western fantasy, Oriental fantasy, the Three Kingdoms, modern, and ancient styles. Among them, various mobile games, including the Guoman Oriental fantasy MMORPG “Doulo Continent: Soul Hunting World”, the ancient style ink simulation management “The Son-in-law”, and the picture book cartoon Guofeng simulation management “The Explosion of Time”, have all received domestic game versions, and are currently actively promoting the product launch process. The company's mini game business is in a leading position, and may open up some incremental space. We believe that the company has a rich pipeline of diversified reserves in the future. With the three-wheel drive of “game going overseas+multi-category layout+mini game”, it is expected that it will steadily survive the industry cycle and achieve long-term healthy development.

Profit forecast: We expect the company to achieve operating income of 18.2/19.8/20.9 billion yuan respectively in 24-26, up 10.3%/8.5%/5.7% year-on-year, and achieve net profit of 3.05/3.44/3.64 billion yuan, respectively, up 14.6%/12.9%/5.7% year-on-year, respectively. By business: Mobile games: In 2024, the company's product reserves are abundant, and the company's mini game revenue continues to contribute. Mobile games are expected to achieve revenue of 17.6/19.2/20.4 billion in 24-26, up 11%/9%/6% year over year, respectively. We expect the company's gross margin of gaming business to be 82.0%/82.5%/82.5% for 24-26, respectively. Web games: The web game business enters the late stages of the life cycle. We expect that web games will gradually shrink in 24-26 to achieve revenue of 0.45/0.4/0.36 billion yuan respectively.

Risk warning: 1) There is a risk that the game industry's revenue scale will decline due to insufficient consumption capacity in the game industry due to pressure from the short-term economic environment at home and abroad; 2) the risk that domestic game versions and imported game versions will fall short of expectations; the game industry's policy risks relating to underage, excessive recharge, cultural review, and game going overseas; 3) the game industry faces increased risk of increased competition in the game industry; 4) The risk of increased competition in game industry segments such as SLG, RPG, and MOBA. , it may lead to a decline in the success rate of products in the industry. 5) The decline in the company's old game flow increases the risk; the delay in the launch of the company's new products may have an impact on current performance; there is a risk that the launch process of the company's game pipeline will fall short of expectations; there is some uncertainty about the new games the company will release, which may fall short of expectations; the company's purchasing volume advantage or there is a risk that competition will increase to a certain extent. (6) Regulatory risk: The company may face regulatory risks from the Securities Regulatory Commission.