Incidents:

The company released its quarterly report. In 24Q3, it achieved operating income of 0.881 billion yuan, a year-on-year decrease of 28.08%; realized net profit due to mother 0.14 billion, a year-on-year decrease of 6.72%; and realized net profit of 0.137 billion yuan without return to mother, an increase of 7.55% over the previous year.

Net profit after deduction of non-return to mother increased year-on-year, putting pressure on marketing and gaming businesses. Looking at a single quarter, 24Q3 achieved net profit of 0.14 billion yuan, a year-on-year decrease of 6.72%; net profit without deduction of 0.137 billion yuan, an increase of 7.55% year-on-year. The profit side decline narrowed markedly, and net profit after deducting non-return to mother increased year-on-year. The third quarter may have reached an inflection point in performance. Looking at the first three quarters, the revenue side: achieved revenue of 2.79 billion yuan, a year-on-year decline of 21.89%, mainly due to the decline in revenue due to business restructuring in the company's digital marketing sector and fluctuations in recharge flow in the game sector in the first three quarters of 2024. Profit side: Net profit attributable to mother was 0.424 billion in the first three quarters, down 23.95% year on year; net profit without return to mother was 0.406 billion yuan, down 22.42% year on year. Mainly due to (1) fluctuations in recharge flow in the gaming sector during the reporting period; (2) large investment real estate disposal proceeds in the same period last year; and (3) the impact of interest accrual on convertible corporate bonds.

A leader in the playing card industry, with steady performance in expanding production and increasing efficiency. The company's playing card business is finely managed, employee management and technical level are improved, and costs are reduced through scientific and technological innovation. The company's fund-raising project “0.6 billion annual production secondary poker production base construction project” is expected to be officially put into operation in 2027, breaking through production capacity bottlenecks, leveraging scale effects, and contributing to performance growth.

Fishing game players are highly sticky, and a variety of fist products are contributing to the increase. The company's core domestic products include the fishing category “Fly the Sky” and “Fishing with Your Fingertips”, as well as “Everyday Love Whipped Eggs,” a mini game with a 10% stake in the head whipped egg, and its main overseas products include the Bingo series “Bingo Wild” and “BingoJourney.” The company has stable sales of many game products, remains at the top of the iOS bestseller list all year round, has strong player stickiness, and is expected to contribute more to the company's business.

Forward-looking layout of a collectible card circuit. The company chose Star Card as an entry point for collectible cards, strategically invested in the DAKA Culture and Collectible Card Trading Platform Card Hobby, the largest domestic card issuer, to lay out the sports culture industry and expand the comprehensive entertainment industry chain.

Maintain a “Highly Recommended” investment rating. Taking into account the narrowing of the year-on-year decline in the company's Q1-Q3 revenue and profit in 24 Q3, when compounded by a year-on-year increase of 24Q3 net profit, we expect the company's 24-26 revenue to be 4.522/5.025/5.478 billion yuan, respectively, with year-on-year growth rates of 5%/11%/9%, respectively; net profit to mother was 0.599/0.746/0.861 billion yuan, respectively, with year-on-year growth rates of 7%/25%/15%, corresponding to current stock price-earnings ratios of 17.4/14.0/ 12.1x, maintaining a “Highly Recommended” investment rating.

Risk warning: the risk of changes in industry policies, the risk of foreign investment, the risk of a significant decline in the flow of active games and new games, the risk of fluctuations in the supply and price of playing card raw materials, etc.