Net revenue and profit have grown rapidly, and cost-side control has achieved remarkable results. In the first half of 2024, the company achieved revenue of 9.232 billion yuan, an increase of 18.96% over the previous year, and achieved net profit of 1.265 billion yuan, an increase of 3.15% over the previous year. The sales/management/R&D expenses ratio was 58.06/3.20/ 3.80%, respectively. The rapid increase in revenue was mainly due to the good performance of mobile game businesses such as “Seek Daqian”, “Domination” and “Soul Prologue”. 24Q2 achieved revenue of 4.482 billion yuan, up 12.16% year on year, and achieved net profit of 0.648 billion yuan, up 43.63% year on year. Sales/management/R&D expense ratios were 55.09/2.39/ 3.92%, respectively, and -4.01/-0.88/ -0.80% year on year, respectively. We believe that 24Q1's cost-side controls have achieved significant results and contributed to the rapid growth of net profit to mother.

Release a semi-annual profit distribution plan and continue to give back dividends to investors. The company actively gives back to shareholders and implements a continuous quarterly dividend plan. It has implemented 0.462 billion yuan in dividends in the first quarter of this year. 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, with a cash dividend amount of about 0.466 billion yuan (tax included). The dividend amount for the first half of 2024 is expected to account for about 73% of the current net profit to mother.

Diverse game category layout, rich reserve products. The company actively lays out a variety of game categories. On the basis of deepening the four cornerstone categories of MMORPGs, SLG, cards, and simulated management, the company has developed more diversified and lightweight product types, including placement RPGs, casual puzzles, and is good at long-term operation.

The company's leading product, “Puzzles & Survival”, has accumulated sales of over 10 billion yuan since its launch in 2020, and has been in the top ten best-selling lists in Japan and the top 30 in Europe and America all year round. In addition, the company has a rich stock of products in MMORPGs, SLG, cards, simulation management, etc., covering diverse themes such as Western fantasy, Oriental fantasy, the Three Kingdoms, modern, and ancient styles. 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 currently actively promoting the product launch process.

Profit forecasting and valuation analysis. We expect the company's 2024-2026 EPS to be 1.39 yuan, 1.58 yuan, and 1.75 yuan, respectively. Referring to the consistent expectations of comparable companies in the same industry, and considering the industry valuation increase and the company's leading position in game distribution and operation, 1) we gave the company a target PE of 16 to 18 times in 2024, corresponding to a reasonable value range of 22.24 to 25.02 yuan; 2) gave the company 2.6 to 3.0 times dynamic PS in 2024, corresponding to a reasonable value range of 22.26 to 25.68 yuan; in summary, we gave the company a reasonable value range of 22.26 to 25.02 yuan, maintaining the “superior to the market” rating.

Risk warning: New version risk, declining turnover risk, increased industry competition risk.