Description of the event

Yao Ji Technology disclosed its 2024 three-quarter report. In 24Q3, the company achieved revenue of 0.881 billion yuan (-28.08% YoY/-4.92% month-on-month), net profit of 0.14 billion yuan (-6.72% /month-on-month +4.92%), after deducting non-net profit of 0.137 billion yuan (+7.55% YoY).

Incident comments

Game traffic may be relatively steady month-on-month, with revenue falling year-on-year due to fluctuations in turnover and marketing business optimization1) The overall revenue of Q3 core fishing products is expected to be relatively stable or pick up from month to month. Since the 23Q3 period is still in the early R&D investment and marketing promotion performance delivery period, game business revenue may decline year on year due to high base and flow fluctuations;

2) The company's marketing sector's Q3 revenue is expected to be under pressure due to business restructuring in the digital marketing sector and high market sentiment in summer game purchases during the 23Q3 period; however, it is expected that the overall marketing business will increase in gross margin driven by structural optimization.

Or due to revenue restructuring driving up Q3 gross margin, operating performance increased month-on-month 1) The company's Q3 gross margin is expected to be +4.5 pct/month-on-month +9.9pct to 40.2% due to a month-on-month improvement in game flow and a decrease in the proportion of Q3 companies' low gross margin marketing business; 2) As a result of the disposal of investment real estate by subsidiaries during the 23Q3 period, the company's net income of 24Q3 is about 0.018 billion, and the company's 24Q3 net profit is compared to the same period last year. Slight decline. Excluding the influence of economic factors, the company's Q3 operating performance all increased year-on-month.

The main business is expected to remain steady and improve quality and efficiency, and the booming card business continues to grow 1) It is expected that after the company further expands its playing card production capacity, it is expected to resolve the company's production capacity bottlenecks and further expand its market share; 2) The company has outstanding performance in the casual game category and is also competitive when going overseas. Early investment in R&D and promotion is expected to continue to release profits in the future, and the overseas game business is showing impressive performance.

2) The company strategically invests in Shanghai to participate in the development and operation of Card Taowang and Card App, and card distribution. It is expected that the invested card business will continue to maintain its high prosperity and growth rate, and the card business is also expected to expand to other IPs.

Profit forecast and investment advice: We expect the company's net profit to be 0.6 billion/0.73 billion in 2024/2025, respectively, corresponding to 18.5/15.2 times PE, maintaining the purchase rating.

Risk warning

1. Multi-field layout and new business development fall short of expected risks;

2. The risk that game launch progress and streaming performance fall short of expectations;

3. Industry regulatory risks.