[Investment points
Incident: Chizicheng Technology released its 2023 annual report. Revenue and profit growth are in line with previous performance forecasts.
Revenue for 2023 reached RMB 3.31 billion, yoy +18.1% (previously forecast was RMB 32.7 to 3.41 billion). Gross profit for 2023 was 1.72 billion yuan, yoy +62.8%; profit for the year was 760 million yuan, yoy +164.7%; net profit to mother was 51 million yuan, yoy +294.2% (previously forecast was 50 to 560 million yuan). The adjusted EBITDA was 670 million yuan, yoy +80.0% (previously estimated at 670 million to 730 million yuan). Cash and cash equivalents also increased from $60 billion in 2022 to $1.39 billion.
By business, social business revenue increased 16.2% year on year to 2.97 billion yuan in 2023, maintaining a leading edge in markets such as the Middle East, North Africa, and Southeast Asia. The gross margin increased 14.6 pcts to 48.1% year over year, mainly due to product function upgrades and content quality improvements, improving the commercialization efficiency and commercial monetization capacity of social products; innovative business revenue increased 38.6% to 340 million yuan year on year. The second growth curve was further revealed. The gross margin increased by 4.1 pct to 87.2% year on year, mainly due to the progress of new products such as Sudoku games incubated by the company Good luck.
The social business “multi-product, multi-market” strategy is progressing smoothly, and many products have entered the list. Starting with MICO, the company gradually launched various social products such as YoHo, SUGO, and TopTop, which verified the viability of the “multi-product, multi-market” strategy. Since August 2023, three social networking products have entered the top 30 of data.ai's “China's Non-Gaming App Overseas Revenue List” for five consecutive months. Among them, SUGO's revenue and profit both increased more than 3 times year on year; TopTop's revenue increased more than 2 times, and profit increased more than 6 times. Furthermore, through the acquisition of Chizicheng Strategy Investment, the company has further expanded its social networking business footprint and launched HeeSay, a multi-person online community for overseas LGBTQ+ users, and will select suitable regions to focus on intensive cultivation, and gradually complete the coverage of social products for diverse people such as HeeSay in more markets around the world through “national replication”.
The innovative business has launched blockbuster games and incubated a variety of new games. The company launched the boutique game “Alice's Dream: Merge Island” in 2023. With its innovative gameplay and art design, it ranked first in Google's global synthesis game list, and ranked at the top of Sensor Tower's overseas revenue and download rankings. At the same time, the company's game team incubated new games such as “Taylor's Secret,” “MergeCove,” and “Sudoku.”
Profit forecast and investment rating: The company's gross margin has increased significantly, and the second growth curve of the game business is further evident. We raised the company's net profit from RMB 41/51 million to RMB 4.5/52 billion yuan in 2024 to 2025, and we expect net profit to be 60 billion yuan in 2026; the current stock price corresponds to the 2024-2026 PE of 6/5/4 times, respectively. We are optimistic that the company's growth logic will continue to be implemented and maintain the “buy” rating.
Risk warning: overseas business risk, overseas policy risk, exchange rate fluctuation risk.