Net profit after deducting Q3 fell 15% year on year. It is proposed to pay out 20 yuan for every 10 shares to maintain the “buy” rating company achieving operating income of 0.859 billion yuan (-10.36% YoY, -16.83%), net profit to mother 0.14 billion yuan (-23.82% YoY, -47.19%), net profit of 0.151 billion yuan (YoY -15.33%, YoY -43.01%). The month-on-month decline in 2024Q3's performance was mainly due to (1) a month-on-month decline in revenue and profit for “Enquiry” Mobile Game 2024Q3; (2) the “Enquiry Mobile Game” 2024Q2 achieved good results, and 2024Q3 revenue and profit declined month-on-month; (3) “Easy Thinking (Mainland Edition)” 2024Q3 saw a month-on-month decrease in overall profit due to the increase in distribution investment exceeding the increase in revenue. The year-on-year decline in 2024Q3 performance was mainly due to a year-on-year decline in revenue and profit of “Enquiry” mobile game, “Enquiry Mobile Game”, and “Happy Thinking (Mainland Edition)”. In addition, the company plans to distribute a cash dividend of 20 yuan for every 10 shares to all shareholders. Based on the company's performance, we lowered our 2024-2026 profit forecast. We expect the company's 2024-2026 net profit to be 9.25/11.55/13.09 billion yuan (previous value was 11.71/13.80/15.38) billion yuan, corresponding EPS was 12.84/16.03/18.17 yuan, respectively, and the current stock price corresponding PE is 17.1/13.7/12.1 times, respectively. We are optimistic that the company's new product cycle will drive a recovery in performance and maintain a “buy” rating.

Core game traffic declined or gradually slowed. Overseas revenue continued to grow at a high rate of “Enquiry” 2024H1 sales volume was 0.656 billion yuan (YoY +16.31%), 2024Q3 revenue was 0.225 billion yuan (YoY -11.42%). Core mobile game turnover fluctuated but continued to grow overall; “Ask Mobile Games” 2024H1 revenue was 1.155 billion yuan (-14.66% YoY), and 2024Q3 revenue was 0.457 billion yuan (YoY- 12.62%); “Happy Thinking (Mainland Edition)” 2024H1 turnover was 0.311 billion yuan (YoY -54.81%), and 2024Q3 turnover was 0.168 billion yuan (-18.45% YoY). Core mobile game sales declined or gradually decreased year over year. Furthermore, the company's overseas revenue continued to grow at a high rate, reaching 0.369 billion yuan (+99.57% year over year) in January-September 2024.

There are plenty of boutique reserve games, and new games are expected to drive performance growth. The company's many reserve games have obtained versions and are expected to be launched at an accelerated pace, including “Echo of Vision” (to be launched in the second half of 2024), “Legend of the Fist and Sword” (to be launched in the first half of 2025), “Asking Sword for Eternity”, “The Strongest Castle”, and “100 Million Light Years”. As the launch of rich reserve games begins a new product cycle, it is expected to gradually offset the decline in old game flow and further drive the company's performance growth.

Risk warning: The decline in the volume of new and old games exceeded expectations, and the launch time or sales performance of new games fell short of expectations, etc.