Net profit from 24Q2 increased, with continuous quarterly dividends to give back to shareholders: the company released its 24-year semi-annual report, and 24H1 achieved revenue of 9.232 billion yuan, up 19.0% year on year; net profit to mother of 1.265 billion yuan, up 3.2% year on year; net profit after deducting non-return to mother of 1.275 billion yuan, up 14.3% year on year. Looking at a single quarter, 24Q2 achieved revenue of 4.482 billion yuan, up 12.2% year on year; net profit to mother of 0.648 billion yuan, up 43.6% year on year; net profit after deducting non-return to mother 0.659 billion yuan, up 48.0% year on year.

At the same time, the company plans to pay 2.1 yuan for every 10 shares, for a total cash dividend of 0.466 billion yuan. In April of this year, the company plans to increase the dividend frequency to once every quarter. 24Q1 has already implemented a cash dividend of 0.462 billion yuan, plus the current 24H1 total dividend of 0.928 billion yuan, a dividend rate of 73%, corresponding to 8/26 market capitalization dividend rate of 3.4%. Assuming that the 24H2 dividend amount is equivalent to the first half of the year, the corresponding dividend rate is about 7%.

24Q2 gross margin declined by 1.4pct/4.3pct to 77.4% year over month, respectively. We expect this is mainly due to increased agency game revenue and increased game sharing costs. The sales expense ratio decreased by 4.0 pct/5.8 pct yoy to 55.1%. It is expected that the main products have entered the purchase volume profit recovery stage.

A variety of long-term products contribute to long-term steady flow, and the new products have performed brilliantly. 1) Minigames: “In Search of the Thousand” and “100 Refining Heroes” have ranked 2/13 in the WeChat Mini Game Bestsellers for the past 30 days (as of 8/26, same below), and “The Legend of Sword” and “The Unknown Man” are also in the top 50. We expect the company to use its traffic operation advantage to maintain a leading position on the mini game circuit, which continues to grow rapidly. 2) APP:

Products that have been online for more than 3 years, such as “Call Me the Treasurer” and “Doulo Continent: Battle of the Spirits”, have remained evergreen. Since the launch of the simulated mobile game “Time Grocery Store” in August, it has ranked 35th on the iOS bestseller list on average. 3) Overseas: The cumulative sales volume of “Puzzles & Survival” has exceeded 10 billion, ranking among the best sellers in Japan, Europe, and the US all year round. “Puzzles & Chaos”, an iterative game with the “3 Matches + SLG” gameplay, has continued to make breakthroughs since its launch.

A global perspective with a long-term layout of diverse categories. In the company's current product reserve, there are 9 self-developed & 1 agent product distributed globally, and 5 agent products are planned to be launched overseas, covering MMO, SLG, cards, simulated management and other categories. Various products, including MMO “Dora Continent: World of Soul Hunters”, and “The Big Bang Theory”, have all received domestic game versions.

Profit forecast and investment rating: We expect net profit to be increased by -6.93%, 17.48%, and 14.75% year-on-year in 2024-2026 to 2.474 billion yuan, 2.907 billion yuan, and 3.336 billion yuan, respectively. The current stock price corresponding to 2024-2026 PE is 11X/9X/8X, respectively, maintaining the “recommended” rating.

Risk warning: risk of declining game volume, delays in the launch of new games, and uncertainty about policy regulation.