It covered Yao Ji Technology for the first time and gave it a “buy” rating. The target price was 33.59 yuan. Yao Ji Technology started with the playing card business. Since 2018, the company has gradually entered the domestic and foreign casual game and internet marketing fields after transformation. After 2022, the company strategically invested in Shanghai Chaowang Company and officially entered the domestic star card market.

Looking ahead, the company's poker business expands production and is expected to achieve a double increase in volume and price. The game business insists that production line operations contribute to the basic performance market, and the IP card business is pioneering a new path of growth.

Deeply involved in the casual game product circuit, and the basic market for the game business is stable

The company has strong operating capabilities in the leisure category, and has launched game products including “Fishing at Your Fingertips”, “Yao Ji Fishing 3D Edition”, “Big God Fishing”, “Xiaomei Dou: Landlord”, and “Qi Qi Lai Mahjong”. All four fishing games are market-leading. Game operating revenue in '23 was 1.226 billion yuan, up 1.9% from the same period, and gross margin maintained a high level of 96% year-round. In 2024, Chengxi Technology, a wholly-owned subsidiary, became a shareholder of Nanjing Dumengmao Network Technology Co., Ltd. (holding about 10% of the shares). The latter focuses on game development and operation. Its representative products include “Every Day Loves Whipped Eggs”. The company's games target long-term operation. The game business contributes to the basic performance market. 24H1 revenue/gross profit accounts for 27%/70%, supporting core profits.

The poker business expands production and efficiency, and the revenue and gross margin are expected to continue to improve the company's products. Combined with the price increase strategy, the unit price steadily increased from 0.9 yuan/unit in 2018 to 1.1 yuan/pair in Q1-Q3 in '23, and the gross margin increased from 20.4% in '18 to 26.6% in '23. In the short term, although the company's playing card business is limited by production capacity factors, it is expected to drive a simultaneous increase in revenue and profit through price increases and overseas marketing strategies. Looking at the medium to long term, as the company actively promotes the “0.6 billion annual production base project”, it is expected to achieve an output of 1.356 billion units by 2028. Considering the scale effect brought about by the increase in the intelligence level of automated production lines and the expansion of production, which is expected to lead to a further decline in production costs, we believe that the revenue and profit side of the company's poker business is expected to continue to increase.

Lay out IP card agents such as Star Card and Pokémon to open up new growth paths. According to iResearch, the market size of China's star card industry is expected to reach 6.49 billion yuan in 2024, and the scale will be close to 10 billion yuan in 25 years. The company strategically invests in Shanghai Lu to Gou Company, with a shareholding ratio of 38.14%, and lays out the Tier 1 and 2 star card market. In addition, the company's affiliate, Yao Ji Chaopin, has deployed a trading card game (PTCG) to expand Pokémon PTCG agents. The product has a broad audience and strong social attributes.

Profit forecasting and valuation

We expect the company's net profit to be 0.588/0.697/0.803 billion yuan in 24-26 years, corresponding to a growth rate of 4.46%/18.59%/15.26%. Comparable company Wind's agreed average expectation for 2025 is 16.7 X.

Considering the steady growth of the company's main business, we can expect a new track layout for the card business. We gave the company 20XPE in 2025, corresponding to a target price of 33.59 yuan, for the first time, and gave it a “buy” rating.

Risk warning: Game flow falls short of expectations, industry policy risks, impairment of goodwill and risk of fluctuations in long-term equity investment value.