Performance Overview: The company released its 2024 three-quarter report. With 2024Q1-Q3, the company achieved operating income of 2.818 billion yuan, a year-on-year decrease of 14.77%; realized net profit of 0.658 billion yuan, a year-on-year decrease of 23.48%; realized net profit deducted from non-mother of 0.613 billion yuan, a year-on-year decrease of 25.54%. With 2024Q3, the company achieved operating income of 0.859 billion yuan, YoY -10.36%, QoQ -16.83%; realized net profit of 0.14 billion yuan, YoY -23.82%, QoQ -47.19%; realized net profit of 0.151 billion yuan, YoY -15.33%, and QoQ -43.01%. The company's profit distribution plan for the third quarter of 2024 plans to distribute a cash dividend of 20.00 yuan (tax included) to all shareholders for every 10 shares, for a total of 0.144 billion yuan (tax included).

The revenue and profits of the “Ask” mobile game increased at the same time, and the new RPG “Fengshen Fantasy World” was launched. 2024Q1-Q3, the total turnover of “Ask Mobile Games” fell 14.13% year on year to 1.612 billion yuan, and revenue and profit declined year on year. In July, the “Enquiry” mobile game launched the annual “Jiachen” edition and launched a new monthly card charging model to boost traffic. 2024Q1-Q3, the total turnover of the “Enquiry” mobile game increased 7.71% year over year to 0.881 billion yuan, and revenue and profit increased year over year. 2024Q1-Q3, the total turnover of “Nian Xiaoyao (Mainland Edition)” fell 46.40% year on year to 0.479 billion yuan, and revenue and profit fell year on year; “Obi Island: Dream Land” revenue and profit declined year on year. “Super Evolution Story 2” and “Pikatang: The Origin of Dreams”, which were launched in December 2023, contributed incremental revenue and profit to 2024 Q1-Q3. In October 2024, the company's Guofen-themed RPG game “Fengshen Fantasy World” was released in public beta, and new features and gameplay such as 3D skill fighting and horizontal and vertical screen switching were launched.

Overseas revenue continues to rise, and reserves of products issued overseas are abundant. 2024Q1-Q3, the company's overseas business achieved revenue of 0.369 billion yuan, an increase of 99.57% over the previous year. 2024Q1-Q3, the company distributed products such as “Fly Dragon Knight (Overseas Edition)”, “Monster Never Cry (US version)”, and “Outpost: Infinity Siege (Steam International Edition)” overseas. As of September 30, 2024, the overall overseas game business had not been profitable. The company has carried out multiple rounds of testing and rapid iterative development in overseas markets. Currently, the company has stocks of various products distributed overseas, such as “The Strongest Castle” and “One Million Light Years”.

The game under development is progressing steadily, and two proxy products are expected to be launched within the year. Currently, the company stocks self-developed products such as “The Legend of the Sword and the Sword (code name M88)”, “Asking Sword Changsheng (code name M72)”, and proxy products such as “Wangdu Genesis Record” and “Echo of Visions”. Among them, “Echo of Visions” is scheduled to be launched on December 30 this year, “Wangdu Genesis Record” is expected to be launched within the year, “Asking the Sword for Eternity (code M72)” will conduct a limited-time paid test in August of this year; “Legend of the Sword and Sword (code M88)” is scheduled to be launched in the first half of 2025.

Profit forecast: The company's new products are steadily launched, the company has abundant reserves of self-developed and proxy products, and the overseas business continues to expand rapidly. Considering the company's current product schedule and stock product flow situation, we lowered our profit forecast. We expect the company to achieve revenue of 3.578, 3.918, and 4.349 billion yuan in 2024-2026, up -14.5%, and 11.0% year over year; achieve net profit to mother of 0.875, 1.002, and 1.168 billion yuan, with year-on-year increases of -22.2%, 14.4%, and 16.6%, corresponding to PE18, 16, and 14x, maintaining the “entry” rating.

Risk warning: Policy and regulatory risks, the flow of old games has declined, and the launch of the project falls short of expectations.