3Q24 results

In the first three quarters of 2024, the company's revenue was 4.51 billion yuan, yoy +11.4%; net profit to mother was 1.09 billion yuan, yoy +94.3%. In 24Q3, the company's revenue was 1.46 billion yuan, yoy +4.53%; net profit due to mother was 0.46 billion yuan, yoy +191.43%; net profit after deduction was 0.215 billion yuan, yoy +38.19%. The sharp increase in the company's net profit attributable was mainly due to the recovery of litigation receivables and the reduction of about 0.25 billion yuan of previously calculated bad debt provisions.

Sales expenses continue to be optimized, and the efficiency of game purchases is steadily improving.

In terms of three fees, the company's sales expenses rate for the third quarter was 14.6%, a year-on-year decrease of 14.8pp, mainly due to a decrease in purchasing volume in the current quarter; the management expense ratio was 24.4%, an increase of 7.5 pp over the previous year, mainly due to an increase in employee remuneration in the third quarter; and the R&D expense ratio was 5.4%, a year-on-year decrease of 0.4 pp.

The company's core game products “Age of Origins” and “War and Order” continue to grow steadily, purchasing efficiency is guaranteed, and long-term operation capabilities are still strong.

Q4 Two new games are launched overseas, which is expected to boost performance.

In terms of new tours, the company expects to launch two “SLG+ Simulated Management” games overseas in the fourth quarter, namely “Code DL” and “Code LOA”. “Code Name DL” combines many elements and gameplay such as cartoons, simulation management, and SLG. It has now also obtained a domestic version, and is expected to be launched as a mini program game in '25. “Code Name LOA” is a civilization-themed SLG game.

The two new games are expected to increase the company's performance in 25 years.

Investment advice

We expect the company's net profit for 24/25/26 to be 1.302/1.367/1.536 billion yuan, yoy 46.7%/5.0%/12.4%, corresponding PE 19.7/18.8/16.7. The company's two long-term operating games continue to provide performance growth for the company. Subsequent overseas launches of new games are expected to provide an increase in turnover and maintain the “gain” rating.

Risk warning

Competition in the game market intensifies; game version distribution falls short of expectations; game launch delays; uncertainty about game policies, etc.