Incident Overview

The company released its 2024 semi-annual report. In the first half of the year, the company achieved revenue of 2.76 billion yuan, a year-on-year decrease of 38.12%; a net profit loss of 0.177 billion yuan, a year-on-year decrease of 146.55%; in the second quarter of 2024, the company's revenue was 1.431 billion yuan, a year-on-year decrease of 44.02%; and a net profit loss of 0.147 billion yuan, a year-on-year decrease of 206.11%, minus a non-net loss of 77 million yuan, which was 51.39% narrower than the first quarter.

? Personnel optimization during the painful period, and the game, film and television business is under pressure

During the reporting period, the game business achieved operating income of 2.65 billion yuan and net profit of 0.166 billion yuan to mother. We determined that the loss was mainly due to the following reasons:

1) The natural decline in the turnover of several active games; 2) The temporary impact of talent pool sorting and personnel optimization costs. In the first half of 2024, the company's management expenses increased 27.15% year on year. In the second quarter, the company's management expenses increased 15.29% year on year, mainly due to expenses related to the company adjusting product layout, focusing on advantageous projects, and optimizing personnel based on this during the reporting period. 3) The overall performance of “One Punch Man: World” fell short of expectations.

During the reporting period, the company's film and television business achieved revenue of 89.6046 million yuan, and net profit after deducting -17.6174 million yuan. This is mainly due to the fact that few film and television productions broadcast and confirmed revenue during the reporting period, and film and television revenue decreased by 88.28% year on year. As a follow-up, the film and television works “Love Shanghai Junlan”, “Just a Dream of Rivers and Lakes”, “A Thousand Peaches Bloom”, “The Night Is Intense”, “In Your Time”, “Shh, the King Is Hibernating”, “Skylark Called Heaven”, and “Security Crisis” are currently being produced, distributed, and broadcast.

Optimize and adjust product layout, and product reserves can be expected

During the reporting period, in line with changes in the market environment and business operations, the company continued to sort out and adjust, optimize product layout in a timely manner, focus on core advantage projects, improve resource allocation efficiency, and concentrate resources on projects that are more advantageous and deterministic, and more in line with the company's strategic transformation needs. Currently, using the two core tracks of “MMO+” and “Card +” as a starting point, the company is actively developing products such as the classic categories “Demon Continent,” “Immortal World,” and “Immortal 2,” as well as the trendy categories “Divergent Million King Arthur: Ring”, “Code Name Barbarian”, “Alien Ring”, and “Code Z”. Among them, the new-school fantasy Guofeng Xianxia MMO game “Immortal 2” launched a paid file deletion test in August 2024. The Western magic MMO game “Magic Continent” will soon begin paid testing in Hong Kong, Macao, Taiwan and other overseas regions, and will be officially launched soon; “Divergent Million: King Arthur: Ring” will soon take the lead in public testing in Hong Kong, Macao and Taiwan.

Investment advice

We maintain our previous profit forecast. We expect that in 2024-2026, the company will achieve revenue of 9.3/10.2/10.9 billion yuan, and realized net profit of 1.1/1.2/1.5 billion yuan, and EPS of 0.54/0.62/0.76 yuan, respectively, corresponding to the closing price of 7.24 yuan/share on August 28, 2024, PE will be 13/12/10 times, respectively, maintaining the “gain” rating.

Risk warning

The pace of new game launches falls short of expectations; risk of preferential tax policies being cancelled; risk of brain drain.