Incident: 37 Mutual Entertainment released its 2024 semi-annual report. The company 24H1 achieved operating income of 9.232 billion yuan, an increase of 18.96% over the previous year; achieved net profit of 1.265 billion yuan, an increase of 3.15% over the previous year; and realized net profit deducted from non-mother of 1.275 billion yuan, an increase of 14.27% over the previous year. Among them, the company achieved operating income of 4.48 billion yuan in 24Q2, up 12% year on year, down 6% month on month, and realized net profit of 0.648 billion yuan to mother, up 44% year on year and 5% month on month. In addition, the company plans to distribute a cash dividend of 2.10 yuan (tax included) for every 10 shares, with a total cash dividend of 0.466 billion yuan, adding the 24Q1 dividend of 0.462 billion yuan, and the company's 24H1 dividend ratio will reach 73%.
The stock of long-term products operates steadily, and mini-games maintain their leading position in the industry. The company's mobile game 24H1 achieved revenue of 8.959 billion yuan, an increase of 20% over the previous year. Domestic products such as “Call Me the Treasurer” and “Doulo Continent: Battle of the Spirits” have remained everlasting, and new products such as “Mortal Men: Legend of the Human Realm” rely on anniversaries and other events to expand users and enrich the player experience. Furthermore, the company maintains a leading position in the industry on the mini game circuit. The launch of the anniversary version of the flagship game “Daredevil” is deeply linked with famous IPs such as “Dora Continent”, “Legend of the Mortal Man” and “Demon Boy”. The game 24Q2 basically remains in the top three of the mini game bestsellers. In addition, products such as “Soul Prologue” and “Domination” also contributed incremental revenue. Overseas, “Puzzles & Survival” has accumulated over 10 billion yuan in sales since its launch in 2020; “Mecha Domination” 24M4 was officially launched in Europe and the US, attracting a large number of users, and has entered the top five Google strategy game free lists in 23 countries and regions.
Product reserves are abundant, and AI exploration continues to be enhanced. At present, a number of self-developed and proxy games have obtained game versions and are actively promoting product launch, including the Guoman Oriental fantasy MMORPG “Doulo Continent: Soul Hunting World”, the ancient style ink simulation business “The Son-in-law”, and the picture book cartoon Guofeng simulation management “The Big Explosion of Time”. In addition, the company has adopted a “three-step AI” strategy to integrate AI into various aspects of game development, distribution, and operation. The company 24H1 has developed casual games that use AI to complete game plot, material, dubbing, music, etc., and continues to explore the possibilities of producing games with all elements of AI.
Investment advice: We expect the company to achieve revenue of 19.011/20.921/22.727 billion yuan in 2024-2026; net profit to mother of 2.888/3.169/3.493 billion yuan; corresponding PE is 12.7/11.5/10.5 times, respectively. The company's purchasing volume is expected to enter the recycling cycle and have abundant product reserves, maintaining a “buy” rating.
Risk warning: Product flow falls short of expectations; launch progress falls short of expectations; economic recovery falls short of expectations; industry policy changes.