1H21 performance outlook: we expect the company's first-half revenue to grow 33% year-on-year to $410 million, mainly driven by the steady monthly flow of its flagship product, the Kingdom era. In order to polish more high-quality products, we expect the company to continue the more aggressive investment strategy since 2020, while with the expansion of the R & D team and increased spending on game promotion, we expect 1H21's main business (excluding investment income) profits to fall to about $61 million year-on-year, and corresponding profit margins to fall to about 15%.
The performance of its flagship products is smooth, and Xinyou is actively expanding its diversified category: the company revealed that the flagship game "Kingdom era" reached a new high of US $66 million at the end of 2020, and continued to record a stable performance in 1H21. In order to continue to attract players, Kingdom era continues to launch new games, including IP linkage, online tower defense, and so on. In addition, the Princess of time, which was launched in 2020,
It newly entered the Japanese market in May this year and is expected to enter other Asian markets in the second half of this year. At present, there are more than 20 games in the company's Pipeline, about half of which are SLG categories that the company is good at. In addition, it also includes multiple categories of games such as female orientation, action and so on.
Maintain aggressive investment, full-year profits or pressure: we believe that the company will maintain a more aggressive investment strategy to actively plan for future growth. In terms of R & D, according to the company's financial report, by the end of 2020, the company has more than 1000 R & D personnel, accounting for more than half of the total staff, and the company plans to recruit more people this year to consolidate R & D strength. we expect the R & D expenditure for the whole year to increase significantly compared with the same period last year. In terms of marketing and promotion, we believe that the company's investment this year will not be reduced, mainly for the purchase of flagship old games and new games. In addition, in view of the expansion of staff size, we expect that the share of administrative costs in revenue will also increase compared with the same period last year. Due to the increase in the proportion of fees as a percentage of revenue for the whole year, we expect the profit side to be under pressure.
Launch the performance reward share plan to bind the core management talent interests: the company announced that it would conditionally grant a maximum of 71.635 million performance award shares to 12 grantees, accounting for about 6% of the total issued share capital of the company. it will be divided into five years from 2021 to 2025 if the conditions are met. We believe that this equity incentive is expected to bind the interests of the company with its core management personnel, enhance the motivation of managers, and help enterprises achieve long-term growth.
Investment advice: maintain a buy-B rating. The target price is HK $11.7, based on 10 times dynamic P / E and HK $1.17 in diluted EPS after adjustment for 2022. The company takes the lead in the global game research and transportation ability, maintains active investment, and makes efforts to polish high-quality new products. We expect the company's revenue to grow by 18% in 2021 / 2022, with an adjusted net profit of $170 million / 180 million and an adjusted net interest rate of 20.9% soybean 21.0%.
Risk tips: 1) the realization of Xinyou is less than expected; 2) the investment in marketing and R & D lowers the profit margin; 3) the monthly flow of flagship games falls sharply.