The gaming and information business is dual-core driven, embraces AI intelligent technology, and provides a “buy” rating for the first time
Since its establishment, the company started with the ICT business. In 2013, the company successfully wholly acquired Tianjin Shell Games, pioneered a game circuit, and successfully launched a variety of high-quality strategic mobile games. Currently, games (mainly overseas games) and information technology services are the company's two main businesses. The game business contributed 75.4% of the company's revenue in 2023, with revenue from overseas, Hong Kong, Macao and Taiwan regions accounting for nearly 90% of the game business revenue. Furthermore, the company promotes the application of AI in vertical fields based on its own NLP natural language core processing technology. Among them, products such as “Taiyue Xiaohui” have already been commercialized, which is expected to bring new revenue growth. We expect the company's net profit to be 10.6/12.4/1.41 billion yuan in 24-26. Referring to the 2024 game business, the company Wind agreed that the average PE value was 13 x, giving the company 20 times PE in 24 years, corresponding to a target price of 10.81 yuan, which covered the “buy” rating for the first time.
Deeply involved in key categories of mobile games going overseas, and stabilizing the long-term operating capacity of the basic game business, the two main products of the basic game company “War and Order” and “City of the Rising Sun” performed well. In 2023, they contributed 25.24% and 70.14% of Shell Game's revenue respectively, totaling more than 95%. Among them, in the eight years since the launch of “War and Order”, MAU and turnover remain high. The quarterly recharge turnover is between 250 million and 300 million yuan. It is expected that it will still be able to provide stable income for the company within a foreseeable period of time. As of the 23Q4 quarter, the recharge volume of “City of the Rising Sun” surpassed the 900 million mark and reached 926 million yuan, up 40.3%/11.4% month-on-month, and the monthly ARPU increased to 72.7 yuan. It is expected that the turnover will continue to grow. In 2024, the company expects to launch two new games, “Dreamland” and “Code Name LOA”. Both are SLG games that the company has been deeply involved in for a long time, and are expected to continue to drive the growth of the mobile game overseas business.
Card space overseas SLG+ track+gameplay integrates innovation+long-term operation to achieve the company's core product. We believe that the key to the company's game business is steady performance and successful operation: 1) Card position accuracy and deep cultivation: the company acquired Shell Games in 2013 to enter the overseas mobile game market. Earlier, the card was placed on overseas SLG+ tracks, and has now distributed dozens of boutique SLG games overseas. 2) Long-term operation: Based on its excellent long-term operation capabilities, the company adheres to a boutique strategy. In the face of rapid growth in revenue and personnel in recent years, the company is not in a hurry to expand the number of games distributed, but instead insists on creating a small number of high-quality products and long-term operation. 3) Gameplay innovation: On top of the SLG gameplay, various pioneering gameplay such as urban defense giant artillery have been developed, further broadening the category reach of SLG. We believe that the company has a deep understanding of the SLG+ circuit and has the ability to innovate, and the game business is expected to continue to be competitive.
The four major sectors of the computer business have performed steadily. The AI business is developing new space. The computer business mainly includes the four major sub-sectors of ICT operation management, Internet of Things/communications, artificial intelligence and big data, and innovative business. In 2023, the company launched the artificial intelligence collection solution “Taiyue Xiaohui” platform, and upgraded to “Taiyue Zhihu” at 23H2 to open up an intelligent telemarketing business line to help B-side customers with pre-sales and after-sales services. Using AI technology, “Taiyue Xiaohui” can increase the commission per person sitting by 50% +, increase case filing efficiency by 8-10 times, and increase compliance satisfaction by 100%. It is expected to continue to open up new space.
Risk warning: The quality of game development falls short of expectations, changes in the competitive landscape of the ICT industry, and the risk of impairment of goodwill.