Incidents:
In 2023, the company achieved revenue of 16.547 billion yuan, a year-on-year increase of 0.86%; net profit to mother of 2,659 billion yuan, a year-on-year decrease of -10.01%; and deducted non-net profit of 2,497 billion yuan, a year-on-year decrease of -13.38%.
2024Q1 achieved revenue of 4.750 billion yuan, a year-on-year increase of 26.17%; net profit to mother of 616 million yuan, a year-on-year decrease of -20.45%; and deducted non-net profit of 616 million yuan, a year-on-year decrease of -8.12%.
Game promotion is intensifying, and performance is under pressure in the short term
In 2023, the company's game operations were steady, with an average monthly operating volume of more than 8 million products, and the highest monthly turnover of mobile games distributed worldwide exceeded 2.3 billion yuan. At the same time, the company “Mortal Man: Legend of the Immortal:
New games such as “Human Realm”, “Domination”, and “Shake a Dream”, as well as mini-program games such as “Seek the Thousand” and “Soul Prologue”, have been launched, and revenue has grown steadily; however, due to the launch of new games, increased sales expenses have put pressure on performance. 2024Q1 Thanks to the release of many new games previously launched, especially mini-games, the company's revenue achieved a significant year-on-year increase; however, net profit still declined year-on-year, mainly due to a sharp increase in sales expenses due to continued increase in traffic investment. The company's performance in the early stages of the promotion of new tours was under pressure for a short period of time, waiting for subsequent new tours to enter a period of stable operation to bring about an increase in performance.
New game reserves are abundant, and the AI layout improves R&D efficiency
At present, the company has stocked more than 40 self-developed or proxy high-quality mobile games, including self-developed games “Code Name Battle MMO”, “Code Name MLK”, etc., proxy games “Time Grocery Store”, “The Son-in-law”, etc. It covers many genres such as MMORPGs, SLG, cards, simulation management, placement RPGs, casual puzzles, etc. Furthermore, many key products such as “Guests Please Stay” and “Time Explosion” have received domestic game versions.
Abundant game reserves are expected to guarantee the pace at which the company's products are launched. Furthermore, the company is actively deploying AI. Currently, generative AI technology has been maturely applied to modules such as 2D drawing and copywriting production, greatly improving human efficiency.
Buybacks boosted confidence. The 24-year plan was to reward investors with continuous dividends in December 2023. The company announced the repurchase plan. The plan is to repurchase the company's shares at no less than 100 million yuan and no more than 200 million yuan. Furthermore, the company's chairman Li Weiwei, vice chairman Zeng Kaitian, and general manager Xu Zhigao increased their holdings of the company by about 1.12 million, 1.13 million, and 2.54 million shares respectively. Repurchases and multiple share increases reflect management's confidence in the future development prospects of the industry and the company. In terms of dividends, the company implemented two equity distributions in 2023, with a total cash dividend of 1,813 billion yuan. Li Weiwei, chairman of 2024Q1, proposed a cash dividend of 2.10 yuan for every 10 shares to all shareholders; furthermore, the company plans to distribute a cash dividend of no more than 500 million yuan per 24Q2 and Q3. Dividends can be expected to increase the company's long-term investment value and protect investors' interests.
Profit Forecasts, Valuations, and Ratings
The company's many benchmark products have been operating steadily in the long term, and the new launch performance is excellent. It is expected that the future will bring performance growth as the products enter a stable operation period. Furthermore, rich game reserves guarantee a stable pace of launch of the company's new products, and it is expected that subsequent new game launches will contribute to an increase in performance. Therefore, we expect the company's revenue for 2024-26 to be 193.96 billion yuan/218.51/24.072 billion yuan, corresponding growth rates of 17.22/12.66/ 10.17%, and net profit to mother of 30.88/33.78/3,594 billion yuan, respectively, corresponding growth rate of 16.16/9.38/ 6.40%. The company was given 18 times PE, and the corresponding target price was 25.02 yuan/share, maintaining the company's “gain” rating.
Risk warning
The risk of tightening policies and regulations, the risk of a slowdown in the growth rate of the game industry, and the risk that the pace of game flow and launch falls short of expectations.