Incident: The company released its 2024 semi-annual report. 2024H1 achieved revenue of 9.232 billion yuan, an increase of 18.96% year on year; achieved net profit due to mother of 1.265 billion yuan, an increase of 3.15% year on year; and realized net profit after deducting non-return to mother of 1.275 billion yuan, an increase of 14.27% year on year. The company achieved revenue of 4.482 billion yuan in a single quarter in 2024Q2, up 12.16% year on year, down 5.65% month on month; realized net profit of 0.648 billion yuan, up 43.63% year on year, up 5.25% month on month; realized net profit deducted from mother 0.659 billion yuan, up 47.99% year on year and 6.93% month on month. The company's 2024 semi-annual profit distribution plan proposes to distribute a cash dividend of 2.10 yuan (tax included) to all shareholders for every 10 shares, with a cash dividend amount of about 0.466 billion yuan (tax included). The 2024H1 dividend amount is expected to account for about 73% of net profit to mother for the current period.
The three fees were significantly reduced in the second quarter to achieve effective fee control. 2024Q2's overall gross margin fell 4.31 pct to 77.41% month-on-month; sales expenses decreased 14.6% to 2.469 billion, sales expenses decreased 5.78 pcts to 55.09% month-on-month; management expenses decreased by 43.1% to 0.107 billion, and management expenses decreased 1.58 pct to 2.39% month-on-month; financial expenses decreased 5.93% to -0.039 billion month-on-month, and financial expenses decreased 0.09pct to -0.86% month-on-month.
Existing games continue to activate users, and long-term product operation capabilities have been enhanced. 2024H1, the company's self-developed card mobile game “Doulo Continent: Soul Master Showdown”, launched a new Ghost Master and new gameplay with the “Three-Year Anniversary” to stimulate users' IP feelings and increase the number of daily active users. “The Legend of Immortal Heroes” will launch the “Three-Year Anniversary” version in mid-2024 to expand users and improve ecological construction in line with traffic management and distribution strategies, and has become a benchmark product for the company's Fairy Tale themed MMORPG. The annual version of the Guofeng fun development game “The Search for a Thousand” was launched. It enhances user stickiness through teamwork and social strategies and gameplay, and is deeply linked with well-known IPs such as “Dora Continent”, “The Legend of Demon Boy”, and “Demon Boy from Nacha” to extend the life span of the product through brand empowerment and social mutual assistance.
The gross margin of overseas business increased, and the SLG circuit advantage continued to be consolidated. In 2024H1, the company's overseas revenue fell 4.27% year on year to 2.898 billion yuan, the gross margin of overseas business increased by 3.32 pct to 76.13% year on year, and the share of overseas business revenue in total revenue fell 7.62 pct to 31.39% year on year. The company consolidated its advantages on tracks such as MMORPGs and SLG in the global market and launched products with diverse themes and very different gameplay. In April 2024, the company launched the SLG mobile game “MechaDomination” with the theme of mechanical behemoths in Europe and the US. The highly free simulation game has attracted a large number of users and expanded the user base of SLG games. The game has entered the top five free Google strategy game lists in 23 countries and regions. “Puzzles & Survival” is launching the “Three Volcano Tour Edition” this year, and player satisfaction with this version continues to increase. “Puzzles & Chaos”, an iteration of the gameplay of “3 3, 3, SLG”, has greatly enhanced art and special effects performance while retaining the core experience of the previous game, and has repeatedly ranked in the top 20 best sellers in the strategy category in various regions around the world.
The “AI Tool Three Little Seven” has been upgraded to improve overall operation efficiency. AI technology has been applied deeply in the company's business, significantly improving the efficiency of all aspects of operation. “2024H1,” the company's self-developed in-house AI office tool, has been upgraded to an intelligent office assistant that can handle complex needs, covering functions such as querying, drawing, translation, and data analysis. The employee usage coverage rate exceeds 90%, improving collaborative work and overall operation efficiency. At the same time, the company has developed a casual elimination game with AI that completes the game's plot, material, dubbing, music, etc., and continues to explore the possibility of producing games with all elements of AI. In addition, the company is actively researching intelligent NPC systems and promoting the construction of a content generation platform for game communities.
Profit forecast: The long-term operation capacity of the company's game stock has been strengthened, overseas products have performed steadily, and AI tools have achieved remarkable results in reducing costs and improving efficiency. The company is expected to achieve operating income of 18.532/20.571/23.245 billion yuan in 2024-2026, with a year-on-year increase of 12.0%/11.0%/13.0%, respectively; net profit to mother of 2.761/3.202/3.78 billion yuan, an increase of 3.9%/16.0%/18.0% year-on-year. Corresponds to PE 10/9/7x, maintaining a “three buy” rating.
Risk warning: industry competition increases risk; risk of policy regulation; risk of game performance falling short of expectations.