The company's recent situation

We were invited to participate in the Investor Exchange Day held by Kaiying Network in Shanghai on November 27, 2024. At the conference, management shared with investors the 2025 strategy, progress in reserve products, IP cooperation and AI progress.

reviews

The 2025 strategy focuses on core categories, overseas travel, game platform business, IP and AI. The company shared its 2025 strategic plan to form a diversified ecosystem with “games” as the core driving force, including: diversified game category layout; focusing on overseas markets; building game platforms and communities; strengthening the IP ecosystem; laying out IP cards; and actively deploying AIGC. In the game category, the nostalgic circuit continues to enrich IP reserves and focus on the construction of the game ecosystem, while the innovative racetrack operates on a long-term basis with diverse products. In terms of overseas market expansion, the company stated that it is a strategic priority for 2025 and plans to further accelerate the pace of product launch. In terms of gaming platforms, the company said that the platform business has grown into the company's fourth most important business direction. Relying on the legendary game box and the multi-game platform Cangyue Island, the company believes it is expected to accumulate platform-based capabilities, enhance the stickiness of game users, and drive the company's growth.

Continuing the nostalgia, innovation and IP circuit strategy, the product reserve is rich. Among the products planned to be launched in 2025, self-developed products include “Tomb Raider: Departure”, “Douro Continent: Legend of the Devil”, “Code Name: Sergeant Black Cat” (in collaboration with Shanghai Film IP), “Dragon Legend” (preparation focus for legendary games), “Three Kingdoms: Return to the Heart of the World”, etc.; proxy products include “Dragon Valley World”, “Code Name: Hot Blood”, the mini-game category “Happy Little Miner”, and the IP category “Digimon: SLG” for all users “Steam Fortress”; “Bleach: Thousand Year Blood Battle” is planned to be launched as an IP collaboration product.

IP cooperation has been strategically deepened, and AI applications have entered the usable stage. In terms of IP cooperation, on the one hand, the company is promoting in-depth cooperation with IP parties Century Huatong and Shanghai Film. The former is a legendary game IP party, and the latter has rich IP reserves for classic domestic animation; the other party continues to expand IP acquisition, adding new IPs, including the three dramas of The King of Fighters, Ragnarok, Red Moon, and Legend of the Ancient Dragon Heroes. In terms of AI applications, on the one hand, the company is promoting the integration of AI with more types of game gameplay; on the other hand, it has iterated on an AI game generation system to automatically generate game interfaces, characters, animations, and values. We believe it may improve the company's productivity with repetitive materials. The company also indicated that its AI game hanging tools may be promoted to external markets, and we believe it is expected to expand new business models. In addition, the company has already invested in AI vendors such as Natural Selection, Magic Network, etc. We believe or supplement the company's AI application layout, and it is recommended to pay attention to the progress of the corresponding vendor's application launch.

Profit forecasting and valuation

Maintaining the profit forecast, the current stock price corresponds to 17/14 times 2024/2025 P/E. Maintaining an outperforming industry rating and a target price of 17.7 yuan, corresponding 23/20 times the 2024/2025 P/E, with 39% upward space.

risks

Macroeconomic downturn, entertainment spending decreased; product launch progress was delayed, and new product performance fell short of expectations; legendary/miracle market stability risks; equity investment and goodwill impairment risks; and game industry policy supervision.