occurrences
The company recently released its report for the third quarter of 2022. The company achieved operating income of 1.3 billion yuan in the first three quarters, +36.54% year-on-year; net profit of 49.2524 million yuan, +80.26% year-on-year; net profit after deducting non-return net profit of 57.88 million yuan, +77.32% year-on-year. Q3 achieved revenue of 523 million yuan in a single quarter, +23.77%; net profit to the parent - 35.62 million yuan, +31.61% year on year; net profit after deducting non-return net profit - 36.68 million yuan, +30.21% year on year.
reviews
Revenue has increased dramatically due to the rebound in broadcasting rights revenue and player transfers, and the profit side is still under pressure due to the launch of no new games in '22. After experiencing relegation to La Liga in the 2021/22 season, the Spaniard soccer club controlled by the company returned to La Liga in the 2021/22 season, and the revenue level of television broadcasting rights recovered. In the first half of the year, the company's sports business increased 350.11% year-on-year to 323 million yuan, and net profit losses narrowed sharply; in the third quarter, club striker Wu Lei transferred 1.5 million euros to Shanghai Seaport after the season, and forward De Thomas transferred 11 million euros after the season. The increase in players' transfer revenue led to a sharp rise in revenue for the company's soccer club in the third quarter. At the same time, since the company did not launch any new game products in 2022, and development expenses increased by 54.1504 million yuan in the first three quarters, the game business revenue and profits were under pressure.
There are plenty of games in the 23-year reserve, and “Battlefield Without Borders” has already received a version number. The company is rich in high-quality IP resources. It has licenses for more than 20 IPs such as “Legend of the Three Kingdoms”, “Sheng Tang Dynasty”, “The Legend of Sheng Tang”, “The Legend of the Deer”, and “Island of Adventure”, as well as complete intellectual property rights for boutique games such as “Age of Blue”. In the first half of the year, due to important products not being able to obtain version numbers as originally planned, the game launch time was delayed, so the game business was still under pressure. However, since July, the company has developed its own ancient historical strategy game “Battlefield Without Borders” and will be distributed exclusively by Tencent. Two other games have passed the final review by the General Administration and are awaiting approval. It is expected that with the release of subsequent reserve product versions and their successive launches, the company's performance in the game business sector in '23 is expected to receive a significant boost, and push the company's overall losses to further narrow or even reverse losses.
Profit prediction
We expect the company's operating income for 2022/2023/2024 to be 1,730/2265/2,591 billion yuan, net profit to be -0.59/0.85/ 185 million yuan, and the corresponding EPS to -0.05/0.07/0.15 billion yuan. According to the closing price on October 28, 23 and 24 correspond to 41 and 19 times PE, respectively. Covered for the first time, giving it a “Cautiously Recommended” rating.
Risk Reminder
The risk of exchange rate changes, the risk of fluctuations in soccer club league levels, the risk of declining macroeconomic spending intentions, and the risk of users falling short of expectations when the game is launched.