Extension mergers and acquisitions to explore the transformation, into the new leisure game track. The company formerly known as Nantong forging, engaged in forging equipment manufacturing business, poor performance, in order to seek new growth power, the company through industrial investment and extension mergers and acquisitions to explore transformation, the main direction for modern advertising services. In 2018, it acquired 100 million JingTV to enter the building advertising market; in 2019, it acquired Ryan Media, laying out its Internet advertising and marketing business; in 2020, it spun off its forging business and acquired Clockwork to enter the leisure game track.
Advertising alliance enables vertical application traffic to be realized. Internet companies have their own APP has reached a high penetration, the user growth dividend is fading, while the traffic of vertical applications outside the station is growing at a high speed. Vertical applications have rich and accurate user tags, cover multi-scene full-time, and have high marketing value. The Advertising Alliance connects a large number of vertical APP and advertising platforms, allocates advertising resources to vertical applications, and the two share advertising revenue in a certain proportion. The ability of advertising alliance to realize vertical application traffic is reflected in: 1) traffic owners no longer need to configure different advertising platforms, explore traffic allocation strategies, simplify procedures and reduce costs; 2) advertising alliances integrate the resources of various advertising platforms to improve the filling rate and revenue of traffic owners; 3) Internet companies have the ability of massive data and high-quality algorithms, accurate advertising to improve the conversion rate and ROI 4) Advertising Alliance provides developers with "buy-grow-cash" lifecycle services.
Casual games open advertising cash mode. Casual games have simple logic, filling fragmentation time, low willingness to pay for internal purchase, high tolerance for advertising, and better conditions for advertising realization. Advertising alliance helps casual games form a growth closed loop and continues to attract users and quality developers. On the one hand, most of the advertisers of casual games buy games, increasing the exposure of new games and forming the cycle of game ecology; on the other hand, the efficient realization of casual games attracts developers to continuously fill the content of high-quality casual games. Advertising revenue accounted for nearly 80% of leisure game revenue in 2019, which has become the main operation mode for the realization of leisure game traffic.
Industrial output of popular styles has a strong ability to share the second ring flow dividend. Casual games have the characteristics of short life cycle, easy to be copied and low cost-benefit of a single product, which requires developers to have efficient and high-quality output ability.
Hippo games cooperate strategically with giants such as byte, Kuaishou and Xiaomi to obtain very fine-grained data on user behavior and fashion trends. through the study and analysis of the data, the "brain" of industrialized Taiwan can accurately produce ideas in line with the current "aesthetic". In the form of "propositional composition", it is handed over to its own studio and peripheral CP for production, extensively mobilizing social production capacity, improving production efficiency and success rate of popular styles. Form the cycle of "producing popular style content-improving cash ability-attracting high-quality CP".
Profit forecast and investment rating: we expect the company's 2021-23 net profit to be 608 million yuan, 875 million yuan and 1.322 billion yuan respectively, which is + 101.7%, + 43.9% and + 51.1% respectively compared with the same period last year.
Through industrial investment and extension mergers and acquisitions, the company has successfully opened up the leisure game advertising cash and Internet advertising marketing business. We are optimistic about the ability of hippo games to industrialize the production of leisure games, the efficiency of enabling high-quality CP in incubation centers, and the rapid rise of Internet giant second ring traffic. We believe that the company is deeply bound to advertising alliance and is expected to share the second ring traffic dividend. The market has not yet fully reacted to the company's transformation. With reference to comparable company valuations, we expect the company's reasonable market capitalization to be 15.2 billion in 21 years, with a "buy" rating corresponding to 25xPE.
Risk factors: the second ring traffic growth is less than expected, regulatory policy changes affect the release of leisure games, goodwill impairment risk