Incident Overview
The company released its 2024 semi-annual report. In the first half of 2024, the company's main revenue was 9.232 billion yuan, up 18.96% year on year; net profit to mother was 1.265 billion yuan, up 3.15% year on year; after deducting non-net profit, 1.275 billion yuan, up 14.27% year on year. In the second quarter of 2024, the company's main revenue for the single quarter was 4.482 billion yuan, up 12.16% year on year; net profit to mother for the single quarter was 0.648 billion yuan, up 43.63% year on year; after deducting non-net profit of 0.659 billion yuan for the single quarter, up 47.99% year on year.
The game business picked up as scheduled, and quarterly dividends are progressing steadily
During the reporting period, the company's game business revenue increased by 18.96%, and its revenue in China increased by 33.82% year on year. We judge that the company's mobile game business, such as “Seek a Thousand,” “Heavenly Prologue,” and “Soul Prologue” performed well, leading to an increase in revenue. Since this year, the company has launched many new products such as “Time Grocery Store”, “Legend of Heroes of the Three Kingdoms”, “Mechadomination”, “PrimalConquest: DinoEra”, and “YesYourHighness”. During the reporting period, the highest monthly turnover of mobile games distributed by the company worldwide exceeded 2.3 billion yuan. “Puzzles & Survival”, “Call Me the Treasurer”, and “Doula Continent: Soul Master Showdown”, and other products that have been on the market for more than 3 years have remained strong, and the country's style of interest has been cultivated. The anniversary version of the game “Search for a Thousand” has continued to show strong potential since the launch of the Douro IP game “Soul Prologue”.
The company attaches great importance to shareholder returns and implements the previous quarterly dividend plan as scheduled. On August 27, the company announced the “2024 Semi-Annual Profit Distribution Plan”. It plans to distribute a cash dividend of 2.10 yuan (tax included) to all shareholders for every 10 shares, and the proposed cash dividend amount is about 0.466 billion yuan (tax included). In the first quarter of this year, the company implemented a cash dividend of 0.462 billion yuan. In addition to semi-annual cash dividends, the dividend amount for the first half of 2024 is expected to account for about 73% of the net profit attributable to mother for the first half of 2024, demonstrating the responsibility of the company and management in strengthening returns to shareholders.
The overseas business performance is steady, and WeChat mini-games continue to be deployed
During the reporting period, the company achieved overseas revenue of 2.898 billion yuan, accounting for 31.39%. Since its launch in 2020, its product “Puzzles & Survival” has accumulated sales of more than 10 billion yuan. It has been in the top 10 best sellers in Japan and the top 30 in Europe and America all year round. The iterative “Puzzles & Chaos” has repeatedly reached the top 20 best sellers in strategy categories in various regions around the world. The SLG mobile game “Mechadomination” with a mechanical behemoth theme was officially launched in Europe and the US in April this year, and has entered the top 5 of Google's free strategy game lists in 23 countries and regions. Furthermore, the company's first-mover advantage in the WeChat mini game field was maintained. During the reporting period, the company's self-developed Douro IP game “Soul Prologue” further consolidated the company's competitive advantage on the mini game circuit through deconstruction of IP content and innovative integration of mini game gameplay. We are optimistic about the incremental significance of WeChat Mini Games, a booming circuit. As the third growth point, mini-game products are expected to continue to contribute to performance.
The fee control strategy is effective, and subsequent reserves are abundant
The company's fee reduction strategy was strong, and the fee rate declined year on year. In the second quarter of 2024, the company's sales expenses rate decreased by 4 pct to 55% year on year, and the management and R&D expenses ratio decreased by 1 pct/1 pct to 2%/4% year on year. We are optimistic that subsequent cost reduction and efficiency increases will continue. Looking ahead to subsequent reserves, the company continues to deepen its diversified product layout. Currently, it has a wealth of products in MMORPGs, SLG, cards, simulation management, etc., covering diverse themes such as Western fantasy, Oriental fantasy, Three Kingdoms, modern, and ancient style. Its Chinese Oriental fantasy MMORPG “Douro Continent: Soul Hunting World”, the ancient ink simulation management “The Son-in-law”, and the picture book cartoon Guofeng simulation management “The Big Bang of Time” have obtained domestic game versions, and is currently actively promoting product launch..
Investment advice
We maintain our previous profit forecast. We expect the company to achieve revenue of 20.2/21.5/22.4 billion yuan in 2024-2026, achieve net profit of 3.4/3.8/3.9 billion yuan, and EPS of 1.55/1.69/1.76 yuan, corresponding to the closing price of 12.43 yuan/share on August 26, 2024, and PE is 8/7/7 times. The company's basic product flow is steady, and subsequent reserves can be expected. With the steady release of game versions, industry regulations are gradually becoming clear. We believe that under the long-term strategy, the company's future performance growth will be steady and sustainable, and maintain the “gain” rating.
Risk warning
In June 2023, the Securities Regulatory Commission filed a lawsuit against the company, the company's actual controller and chairman, and the company's vice chairman; risk of game version policy contraction; risk of new game testing falling short of expectations; risk of preferential tax policies being cancelled; and risk of brain loss.