Key points of investment
Event: 2023Q1-3 achieved revenue of 2,290 million yuan, yoy +128.11%, net profit of 206 million yuan, yoy +122.70%, net profit of 214 million yuan after deducting non-return net profit of 214 million yuan, yoy +134.87%.
Among them, 2023Q3 has revenue of 863 million yuan, yoy +394.23%, qoq +17.55%, net profit of 90 million yuan, yoy +726.18%, qoq +71.71%, net profit after deduction of 89 million yuan, yoy +751.32%, and qoq +45.21%.
Under the effect of a low base, the performance of 2023Q3 recovered significantly. The company's main business is modern advertising service business. Overseas in the second half of 2022 was affected by the economic downturn, and the advertising budgets of various companies were reduced, resulting in a low revenue base for the company's overseas advertising business. Furthermore, in order to meet the challenges, the company tried its best to expand the scale of domestic business. The share of the domestic Internet advertising business increased from 8% in 2021 to 63% in 2022, but due to the low overall gross margin of the domestic business, the net profit base was low. Coupled with the low base effect and the recovery of domestic and foreign advertising markets in 2023, the company's 2023Q1-3 revenue and net profit increased year-on-year, and performance continued to recover. Among them, 2023H1's Internet advertising business achieved revenue of 1,206 billion yuan, an increase of 51.42% over the previous year.
Prepaid purchases target high-end servers, which are expected to benefit from increased demand for computing power for large models. The company prepaid 812 million yuan to purchase high-end servers in 2022 and plans to rent or build its own data centers in Zhejiang, Henan and Fujian to provide customers with cloud computing and cloud storage services. The company has signed a number of cloud service orders, and orders have already been placed in 2023H1, corresponding to 2023H1 cloud service revenue of 220 million yuan, with a gross profit margin of 41.71%. We are optimistic that the company will lock in supplies in advance through prepayment. The forward-looking layout will continue to benefit from the growing demand for computing power in the AI industry, and performance elasticity is expected to gradually materialize.
Casual games are already laid out, and we look forward to future interactive games/AI games contributing to increased performance. At the end of October 2023, the interactive love live-action video game “Done! I'm surrounded by beautiful women!” It reached the top of the Steam bestseller list in the country and the top 7 global bestsellers list. On 2023/10/30, the number of people who were online on Steam at the same time was about 65,000, and the praise rate was as high as 95%. Hippo Joy (Hippo Joy), a subsidiary of the company, will join forces with online video content company Kishu Youyu to collaborate on interactive video games. The first installment will cover genres such as Chinese-style horror and suspense, Oriental fantasy, and simulated love interactions. Currently, games that have been planned and developed include “Open the Coffin,” “Missing the Fairy,” and “Brother, Go Go,” etc., and are scheduled to be launched within 2024. In terms of AI games, Hippo Joy (Hippo Joy) released the AI casual game “Big Detective Smart Battle Little AI” in June 2023, which performed well in the iOS free rankings in Hong Kong, Macao, and Taiwan regions of China. We expect the company's interactive/AI game layout to continue to be implemented, bringing flexibility to performance.
Profit forecast and investment rating: We expect the company's 2023-2025 EPS to be 1.96/2.94/3.96 yuan, respectively, corresponding to the current stock price PE of 22/15/11 times. We are optimistic about the company's forward-looking layout of AI games/interactive games and computing power. Performance elasticity is expected to continue to be realized, covered for the first time, and given a “buy” rating.
Risk warning: increased risk of competition in the advertising business, risk of falling short of expectations in the promotion of new tourism, risk of collection of accounts receivable