Incident: 2024Q1-3 achieved revenue of 2.818 billion yuan, yoy -14.77%, net profit due to mother 0.658 billion yuan, yoy -23.48%, net profit of 0.613 billion yuan after deducting non-attributable net profit of 0.613 billion yuan, yoy -25.54%. Among them, 2024Q3 achieved revenue of 0.859 billion yuan, yoy -10.36%, qoq -16.83%, net profit due to mother 0.14 billion yuan, yoy -23.82%, qoq -47.19%, net profit without return to mother 0.151 billion yuan, yoy -15.33%, and qoq -43.01%, which is slightly lower than our expectations.

The stock of games has naturally declined, and we look forward to new games being cashed out one after another. 2024Q3's revenue declined 10.36% year over year, mainly due to the fact that the sales volume of the existing games “Ask for Mobile Games”, and “Let Me Know (Mainland Edition)” fell 11.42%/12.62%/18.45% year over year, down 16.83% from month to month. It was mainly due to the “Wantao Mobile Game” and “Wendao Mobile Game” Q2 anniversary events, which had a high turnover base. Looking ahead, the company's game stock is expected to stabilize. The year-on-year decline in “Ask Mobile Games” and “One Thought Getaway (Mainland Edition)” has narrowed by 14.70%/54.80% compared to 2024H1. Self-developed new games “Legend of the Sword” and “Asking Sword Longsheng” have been paid tested in 2024/08 and are expected to be launched one after another on 2025H1. The proxy games “Wangdu Genesis Record” and “Fengshen Fantasy World” will be launched in September and October 2024, and “Echo of Vision” is expected to be launched in 2024 In-house launch, looking forward to the company's new game driving a restart of performance 2024Q3 growth.

Combined with effects such as exchange, etc., the profit side was further pressured month-on-month. 2024Q3's net profit after deducting its mother fell 15.33% year on year, down 43.01% month on month, the month-on-month decline was significantly greater than revenue. The main factors were a combination of factors: 1) the Q2 anniversary revenue and profit base of “Ask for Mobile Games” was high, 2) “Easy Thinking (Mainland Edition)” increased its purchase volume in 2024/07, and the increase in distribution investment exceeded the corresponding revenue growth amount, resulting in a decrease in profits; 3) “Monster Never Cry” was launched in Hong Kong, Macao, Taiwan, and South Korea on 2024/09. The mismatch of revenue and expenses was confirmed, and there were losses in the current period; 4) In addition, changes in exchange gains and interest income during the quarter also had a certain impact. 24Q3 had an exchange loss of 16.99 million yuan, 24Q2 was 6.94 million yuan in return exchange income; 5) 24Q3 company's interest income was 11.84 million yuan, and 24Q2 was 27.76 million yuan.

Continued high dividends are rewarded to shareholders. 2024Q3 announced that it plans to distribute a cash dividend of 20 yuan (tax included) to all shareholders for every 10 shares, with a total cash dividend of 0.144 billion yuan. The total cash dividend of the 2024Q1-3 company is expected to be 0.466 billion yuan (tax included), accounting for 70.94% of net profit attributable to mother for the period. The cash dividend and repurchase amount of 2024Q1-3 is 0.519 billion yuan (tax included), accounting for 78.87% of net profit due to mother for the period. The high dividend returns to shareholders.

Profit forecast and investment rating: Considering that the company's game stock is still under some pressure, we lowered our previous profit forecast. The company's 2024-2026 EPS is expected to be 12.05/14.30/15.34 yuan respectively (previously 13.13/15.31/16.93 yuan), corresponding to the current stock price PE 18/15/14 times, respectively.

We are optimistic that the company's stock of old players will stabilize month-on-month. The successive launches of new tours will drive performance restart growth, while actively rewarding shareholders with dividends and maintaining a “buy” rating.

Risk warning: risk of declining game stock, risk of new games falling short of expectations, risk of industry regulation