Company incident
On April 15, 2021, the company released its 2020 annual report. In 2020, the company achieved operating income of 1.024 billion yuan, an increase of 47.0% over the same period last year, a net profit of 395 million yuan, an increase of 73.1% over the same period last year, and a non-return net profit of 326 million yuan, an increase of 79.0% over the same period last year.
The company's revenue growth mainly comes from the "Dream three Kingdoms" product line and 2020Q4 Xinyou online company, which achieved a total net profit of 395 million yuan in 2020, an increase of 73.1% over the same period last year, which is in line with the range of 3.68-428 million yuan in the performance forecast. The main reasons for the rapid growth of the company's net profit are:
1) the product line of "Dream three Kingdoms" is outstanding: in terms of PC games, thanks to the expansion of the user scale of "Dream three Kingdoms" PC games on the WeGame platform in January 2020, and the opening of the 10th anniversary celebration of 2020Q4 to attract old players back, the revenue of PC games of "Dream three Kingdoms" increased by 23.6% compared with the same period last year. Mobile games, driven by the launch of the first anniversary celebration, "Dream three Kingdoms Mobile Games" replica income continues to rise, the game is currently in the iOS bestseller list 100th-300th range, the performance is more stable. 2) the launch of 2020Q4's new games: the company's self-developed two-dimensional mobile game, "the reliever", and Tencent's only-generation martial arts strategy RPG mobile game, "my Chivalrous", are all launched on 2020Q4, increasing the company's profits. 3) amalgamation of the mobile network: the company acquired 80% of the shares in the mobile network in March 2019 and included in the consolidated statement; the mobile network promised to deduct the non-homing net profit of RMB 5000, 000 and 72 million respectively in 2021, and its non-homing net profit of RMB 51,686.941 million in 2019 and 2020, respectively, exceeding the performance commitment.
Investment in R & D continues to grow, and the cost of new tourism promotion increases slightly.
The overall rate of corporate expenses remains stable. In terms of R & D expenditure, the company continues to increase its R & D investment, increasing R & D expenditure by 41.5% in 2020, and the R & D expenditure rate is 16.2%, maintaining a high level in the industry. In terms of sales expenses, due to the online operation of many new 2020Q4 games, advertising expenses have increased, and sales expenses have increased by 32.3% compared with the same period last year.
When the new round of product cycle is going on, the follow-up development is full of momentum.
Since Q4 in 2020, the company has successively launched a number of new mobile games, such as "the Solver" and "my Knight-errant", entering a new round of product cycle. In 2021, the company's main products include: MOBA mobile game "DC:", which is developed by DC's major superhero authorized companies.
"Top Battlefield"; "Barbarian Battle 2", which inherits the excellent standard of previous work and is expected to achieve the transformation from high word-of-mouth to high return; and "Yuaneng out of control", an independent game with high reputation.
Investment suggestion
We believe that the company's short-term logic lies in this year's product line, while the medium-and long-term logic lies in the company's excellent R & D strength and deep-rooted innovation genes. In terms of product line, the full platform launch of 2020Q4's "Demonist" and "my Knight-errant" marks the beginning of a new product cycle for the company, while the company's main products in 2021 include the DC-authorized MOBA mobile game "DC: Top Battlefield" and the succession of the former excellent standards of "Barbarian Battle II". A number of blockbuster mobile games are expected to drive further rapid growth. In terms of medium-and long-term driving forces, under the trend that the mobile game industry will continue to maintain rapid growth in the future, while the value of developers is further highlighted, the company is expected to rely on its own excellent R & D strength and innovative genes. continue to create differentiated high-quality mobile games works, so as to promote sustained growth in future performance.
We estimate that the company's operating income from 2021 to 2023 will be 14.0 trillion yuan, an increase of 35.8%, 24.3% and 15.0% respectively over the same period last year, and the net profit of homing will be 773 million yuan, an increase of 33.4%, 24.2% and 18.2% respectively over the same period last year. The EPS is 2.12, 2.64 and 3.12, respectively, and the corresponding PE is 12.82X/10.32X/8.73X. Give "overweight" rating.
Risk hint
1) the risk of a slowdown in the game industry
2) the risk of tightening the game version number policy
3) the risk that the launch of new games will be delayed or the performance of the new games will not be as good as expected.
