Incident: Gigbit released its 2024 three-quarter report. During the reporting period, it achieved total revenue of 2.818 billion yuan, a year-on-year decrease of 14.77%, net profit to mother 0.658 billion, a year-on-year decrease of 23.48%, and net profit after deduction of 0.613 billion yuan, a year-on-year decrease of 25.54%. Total operating income for the third quarter was 0.859 billion yuan, down 10.36% year on year, net profit to mother was 0.14 billion, down 23.82% year on year, and net profit after deduction was 0.151 billion yuan, down 15.33% year on year.

Net cash flow from operating activities in a single quarter was 0.233 billion, up 4.41% year on year. The total for the first three quarters was 0.827 billion, up 0.3% year on year.

Dividends: In Q3, it is proposed to distribute a cash dividend of 143,512,602 yuan (tax included). Cash dividends for the first three quarters accounted for 70.94% of the mother's profit, plus repurchases reached 78.87%.

Q3 “Wendao Mobile Game” and “Wendao” mobile game sales declined, and quarterly profits declined sequentially due to a decline in sales of “One Thought at a Time” and an increase in sales. “Wendao Mobile Game” 2024Q2 achieved good results. The Q3 revenue and profit declined compared to Q2, and the “Wantao” mobile game Q3 revenue and profit both declined month-on-month; at the same time, the overall profit of “Easy Thinking” 2024Q3 decreased significantly from month to month because the increase in distribution investment exceeded the increase in revenue. The month-on-month decline in the three core products led to a significant month-on-month decline in profit in the single quarter.

There was a slight increase in the sales expense ratio. Q3 The total sales expenses, management expenses, R&D expenses, and financial expenses for a single quarter was 0.542 billion, with a comprehensive cost ratio of 63.1%, an increase of 10.5 percentage points over the same period last year. The Q3 sales expense ratio reached 28.9% in a single quarter, an increase of 2.1 percentage points over the same period last year.

Profit forecast and valuation: Since the Q3 game stock performance was slightly lower than expected, we lowered the company's performance forecast appropriately. The company's revenue for 2024-2026 is 3.775 billion (previously 3.89 billion billion), 4.421 billion (previously 4.499 billion), and 4.775 billion (previously 4.859 billion), respectively, up -10%, 17%, and 8% year-on-year. Net profit attributable to mother was 0.878 billion (previously 0.951 billion), 1.079 billion (previously 1.119 billion), and 1.281 billion (previously 1.284 billion), up -22%, 23%, and 19% year-on-year. The current market value corresponding to 2024-2026 PE is 17.4x, 14.2x, and 12.0x, maintaining a “buy” rating.

Risk warning: 1) Stricter version control policies; 2) Game launch times fall short of expectations; 3) The risk that the information data used in the research report is not updated in a timely manner.