2024H1's performance increased dramatically, and new games and TapTap are expected to drive growth, maintaining a “buy” rating of 2024H1 to achieve operating income of 2.221 billion yuan (+26.7% YoY); net profit to mother of 0.205 billion yuan (+127.4% YoY); and adjusted net profit to mother of 0.237 billion yuan (+110% YoY). The increase in performance was mainly due to: (1) new games such as “Let's Go Muffin”, “Sword of the Suzuran” and “Torchlight: Infinite” led to an increase in game business revenue to 1.486 billion yuan (+29.3% YoY); (2) the increase in monthly active TapTap users and increased marketing demand from game advertisers drove TapTap's revenue to 0.734 billion yuan (+21.7% year over year). We maintain our profit forecast for 2024-2026. We expect the company's net profit for 2024-2026 to be 0.783/1.137/1.246 billion yuan, corresponding EPS of 1.6/2.4/2.6 yuan respectively, and the current stock price corresponding PE is 11.1/7.6/7.0 times, respectively. We are optimistic that the new games “Let's Go Muffin”, “Heartbeat Town” and TapTap will drive the company's performance growth and maintain the “buy” rating.

“Let's Go Muffin” contributed significantly to revenue growth. The launch of the new game continued to drive performance growth 2024H1 “Let's Go Muffin” became the largest game contributing to the company's revenue. The 2024H1 company's overseas revenue was 0.618 billion yuan (+65% YoY). “Let's Go Muffin” Hong Kong and Macau Taiwan service contributed significantly to revenue growth in the first half of the year. The “Let's Go Muffin” national service was launched on May 15, or there may be some revenue delays, which is expected to contribute to the increase in performance in the second half of the year. In addition, “Heartwarming Town” was launched on July 17, the “Sword of the Suzuran” international service was launched in August, the “Let's Go Muffin” Hanbok will be launched on September 11, and the “Let's Go Muffin” Japanese suit and other overseas regions will also be launched in the second half of 2024. The launch of new games one after another is expected to continue to drive the company's performance growth.

TapTap users are growing rapidly, and the long-term growth and monetization space of the TapTap 2024H1 MAU reached 43.24 million (+27.3%). It is mainly a large number of major new games launched domestically. Among them, games such as “Sword Net 3: Unbounded” were exclusively distributed on TapTap, and third-party games such as “Phigros” and “Happy Fishing Master” also gained good exposure throughout the network through the help of TapTap. It has also gained a large number of new users for TapTap users. The self-developed game “Heart Town”, which was launched on July 17, collaborated closely with TapTap on distribution and had over 25 million downloads in the first month, bringing a large number of new users and broader brand awareness to the platform. At the same time, with the launch of a large number of new games during the summer, the platform MAU is expected to continue to grow. In addition, in order to ensure the user experience, the company's 2024H1 limits the ad load rate, which is conducive to the healthy growth of the platform. There is plenty of room for growth in platform traffic and price over the long term.

Risk warning: New game launch performance falls short of expectations, TapTap's revenue growth falls short of expectations, etc.