Total revenue: 24Q3 reached 7.31 billion yuan (yoy +26%, qoq +19%), and the advertising and gaming business mainly drove the company's growth. 24Q3 gross margin reached 34.9% (yoy+9.9pp, qoq+5.6pp). 24Q3 sales expenses were 1.202 billion yuan (yoy +21%, qoq +16%), management expenses were 0.505 billion yuan (yoy +1%, qoq +4%), and R&D expenses were 0.906 billion yuan (yoy -15%, qoq +1%). 24Q3 Non-Gaap operating profit of $0.272 billion was corrected for the first time. We expect 24Q4 Non-Gaap operating profit to reach 0.4 billion yuan.

Non-Gaap net profit for 24Q3 reached 0.236 billion yuan (non-Gaap net loss of 0.88 billion yuan in the same period last year).

Advertisement: 24Q3 reached 2.09 billion yuan (yoy +28%, qoq +3%). The proportion of advertising revenue in total revenue increased from 27% in the same period last year to 29%, effectively driving the company's gross profit increase. Supply side: The steady growth of DAU combined with the continuous integration of commercial products has led to continuous improvement in monetization efficiency. Demand side: As users of Station B mature, consumption capacity is quickly released. Gaming, e-commerce, digital appliances, internet services, and automobiles have become the top five industries contributing to advertising revenue. Advertising revenue from emerging industries such as education, motherhood, and cultural tourism grew rapidly, with a year-on-year increase of more than 100%. The company's e-commerce has always adhered to the “big open loop” strategy, bringing more than 50% of new customers to all vertical industries. During the “Double 11" period, the GMV delivery at Station B increased rapidly by 154% compared to last year's big promotion period, and the number of advertisers was 6.6 times that of the same period last year. We expect Q4 revenue to reach 2.4 billion (yoy +24%, qoq +14%).

Live streaming & VAS: 24Q3 reached 2.82 billion yuan (yoy +9%, QoQ +10%). Among them, the increase in the number of paying users for membership, live streaming, and other value-added services is the main driving force. We expect Q4 revenue to reach 3 billion yuan (yoy +5%, qoq +6%).

Gaming: 24Q3 reached 1.82 billion yuan (yoy +84%, qoq +81%). Mainly due to the increase in contributions to “Three Kingdoms: Determining the World”. We expect Q4 revenue to reach 1.8 billion yuan (yoy +79%, qoq -1%).

The performance of the company's new game “Three Kingdoms: Determining the World” exceeded expectations, driving high game growth; supply-side advertising traffic increased, adload increased, and demand-side users grew older and commercialization capabilities unleashed. We expect the company's revenue for 24-26 to be 26.8/31.5/34.1 billion yuan (the original forecast value was 26.8/30/31.7 billion yuan, as the game “Three Kingdoms: Designing the World” exceeded expectations and raised the revenue forecast). Based on the comparable company's 24-year adjusted PS average of 2.4x, the target price is 166.43 HKD (153.73 CNY), and the exchange rate HKD/CNY = 0.92, maintaining the “buy” rating.

Risk warning

User growth falls short of expectations; cost control falls short of anticipated risk