The company was founded in 2008, started with the development and distribution of page games, then successfully transformed into “page to page” and went public in 2015. In 2014, the original “National Miracle MU” expanded its mobile game distribution business. In 2017, the merger and acquisition of Zhejiang Shenghe strengthened the R&D advantages of the legendary category and expanded into innovative categories, developed and launched successful products such as “Gundam Battle”. Since 2019, under the leadership of the new management, the company's internal governance has improved markedly, business difficulties have been reversed, focusing on the “R&D, distribution, investment+IP” strategy, and performance has returned to a growth trajectory. In 2024, the company's self-developed and distributed product matrix is rich and IP reserves are diverse, and it is expected to start a new product cycle; the self-developed “shape” model will be implemented to improve R&D efficiency, and it is expected that AI will establish an efficiency cycle of “R&D+distribution+IP adaptation”, and future commercialization performance is worth looking forward to.
Internal governance has improved markedly, business difficulties have been reversed, and new management has set sail for the gaming business.
The new chairman has rich experience in the game industry, and continuing to increase his shareholding in the company shows his long-term confidence in the company's development. The new chairman Jin Feng has over 10 years of experience in the game industry; as of March 2024, Jin Feng invested 1.53 billion yuan to increase his stock holdings, and became the actual controller of the company in December 2023.
The asset structure continues to be optimized. The subsidiary Zhejiang Shenghe has deep research and development capabilities in legendary and innovative games. The company acquired 100% of Zhejiang Shenghe's shares in three installments of 2.38 billion yuan in June 2016, July 2017, and May 2023; the subsidiary Zhejiang Jiuling faced huge claims due to legendary copyright disputes, and the company divested Zhejiang Jiuling in August 2020, and unresolved major litigation and arbitration revealed the risks posed to the company's operations.
The legendary category stabilizes core users, and the innovative category successfully expands young users. Pipeline reserves are abundant in 2024, which is expected to start a new round of product cycles.
Legendary categories are deeply tied to upstream and downstream leaders in the industrial chain, while developing innovative categories of games to expand young users. The company deepened cooperation with Shengqu Games and Zoufan Games through the signing of strategic cooperation agreements, the establishment of joint ventures, and mutual shareholding. The turn-based RPG “Stone Age: Awakening” entered the Top 8 App Store Bestsellers, and the two-dimensional open world “Sword Art Online: Black Warrior: Ace” entered the App Store Top 8 bestseller list.
Supported by “IP reserves+self-development capability”, the 2024 product matrix is rich. Legendary categories include “Legend of Dragon” and “Legend of Liangshan”; innovative categories include major products such as the MMORPG “Doulo Continent: Legend of Evil”, the open world “Nazarek: Rise”, the ARPG “Tomb Raider Notes: Departure”, the SLG “Code Name: Nobunaga”, and the strategic RPG “About My Reincarnation as a Slime: A New World”.
The “R&D, Distribution, Investment+IP” troika went hand in hand, and the self-developed “shape” model was implemented to fully improve the efficiency of AI.
The R&D business has a solid foundation, and self-developed “shape and meaning” models can improve R&D efficiency and help the “IP adaptation+product matrix” strategy. The R&D system includes 3 major subsidiaries (Shanghai Kaiying, Zhejiang Shenghe, and Hangzhou Yimu) and 7 studios, which have established a pipeline, standardized, modular and automated R&D industrialization system. Self-developed “shape and meaning” models are deeply integrated into the R&D pipeline, improving efficiency in the fields of generating detailed assets such as stylized UI frames, large-scale assets such as complex 3D topographic maps, and original stylized character drawings, etc., and can realize functions such as automated disassembly of literary scripts/plots and automatic production task lines.
Mini-games and overseas distribution businesses continue to innovate, and investment+IP feeds back into the game business. The distribution business takes advantage of mini-games and overseas growth. In February 2024, “Monster League” and “Legend of Sword and Fairy: A New Beginning” were ranked in the top 9 and top 10 WeChat mini game bestsellers; reserve SLG's new product “Code Name: Nobunaga”, which is expected to open up the Japanese market. IP partners to reserve major IPs such as “Notes on Tomb Raiding,” “Reaper's Thousand Year Blood Battle,” “Altman,” “Nobunaga's Ambition,” “Overlord,” “Mobile Suit Gundam,” “Dragon Clan,” and “About My Reincarnation as a Slime.”
Profit prediction and investment rating: The company focuses on the main business of “R&D, distribution, investment+IP” of games, and develops its own “shape” model to achieve comprehensive AI efficiency improvement. In 2024, the product matrix for self-developed and proxy distribution is rich, and the applet game business and overseas distribution business are expected to open up room for further growth in the company's performance. We expect the company's 2024-2026 revenue to be 54.59/63.96 billion yuan, net profit to mother of 18.65/21.87 billion yuan, EPS of 0.87/1.02/1.09 yuan, and PE of 11.3/9.7/9.0X, maintaining a “buy” rating.
Risk warning: Industry competition intensifies, new product launch progress and performance falls short of expectations, old product flow falls short of expectations, overseas policy changes, management-related risks, downward valuation center, new technology development falls short of expectations, companies are not fully comparable. The relevant data and data on the target are for reference only.