Incident: The company released its 2024 semi-annual report. 1H24 achieved revenue of 9.232 billion yuan, up 18.96% year on year, net profit of 1.265 billion yuan, up 3.15% year on year; 2Q24 achieved revenue of 4.482 billion yuan, up 12.16% year on year, and net profit of 0.648 billion yuan to mother, up 43.63% year on year.

The long-term operation capacity is remarkable, the performance of small games is outstanding, and the 2Q24 sales expense ratio has narrowed. In the first half of 2024, the company's mobile game revenue was 8.959 billion yuan, accounting for 97.04%, up 19.82% year on year, gross profit margin 80.98%, up 2.15 pct year on year. During the reporting period, the company extended the product life cycle through micro-innovation activities such as IP linkages and anniversaries. The highest monthly turnover of mobile games released worldwide exceeded 2.3 billion yuan. Products such as “Puzzles & Survival,” “Call Me the Treasurer,” and “Battle of the Spirits” remained evergreen. Small games such as “Quest for the Thousand” and “Soul Prologue” performed brilliantly. In August, the simulated mobile game “Time Grocery Store” was launched. According to Qimai data, the game has ranked 34th in the iOS game bestseller list since its launch. 2Q24's sales expenses ratio was 55.09%, which narrowed 4.01pct/5.78pct month-on-month, respectively.

Continuous quarterly dividends to enhance shareholder returns. In the first quarter of this year, the company implemented a cash dividend of 0.462 billion yuan. 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 of 0.466 billion yuan (tax included). It is estimated that the dividend amount for the first half of 2024 will account for about 73% of the net profit attributable to mother for the first half of the year.

Product reserves are abundant, and many games have obtained edition numbers. The company has a rich product reserve, covering various types such as MMOPRG, SLG, cards, and simulated management. 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 yet to be launched.

Profit forecast: We expect the company's net profit for 24/25/26 to be 2.698/3.074/3.402 billion yuan, YoY +1.5%/13.9%/10.7%, respectively. The long-term operation capacity is remarkable, the mini game performance is impressive, the quarterly dividends are continuous, and shareholder returns are strengthened, and the “buy” rating is maintained.

Risk warning: Game version progress falls short of expectations; new game releases fall short of expectations; policy risks