\u3000\u3000 Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) (002555)
Event:
The company announced the performance forecast of 2021. It is expected to realize the net profit attributable to the parent company of 2.8 ~ 2.85 billion yuan, yoy + 1.41 ~ 3.23%, deducting the non net profit of 2.55 ~ 2.6 billion yuan, yoy + 6.61 ~ 8.7%.
Key investment points:
The strategy of high-quality products, diversification and globalization achieved phased results and promoted the performance of Q3 and Q4 to climb to the peak. The company’s annual performance exceeded expectations, corresponding to the net profit attributable to the parent company of 1.08 ~ 1.13 billion yuan (YoY + 115.5% ~ 125.4%, QoQ + 24.4% ~ 30.1%) in the single quarter of Q4 in 2021, deducting non net profit of 1.03 ~ 1.08 billion yuan (YoY + 133.8% ~ 145.2%, QoQ + 16.9% ~ 22.6%). Quarterly, the net profit attributable to the parent company of Q1 / Q2 / Q3 was 120 / 7.4 / 870 million yuan respectively, yoy-84% / – 24.1% / + 54.8%, qoq-76.7% / + 531.1% / + 17.7%. The quarterly performance was released as expected. As there are few new Q4 products launched, the quarterly sales expense rate is expected to be the lowest in the whole year, and the revenue side is expected to remain relatively stable month on month, so the profit in a single quarter is a record high. Throughout the year, the company’s sales expense rate is expected to remain stable, and the strategy of stabilizing ROI investment has also been implemented.
In 2021, the company firmly adhered to the strategy of high-quality products, diversification and globalization and achieved phased results. Self developed “Douluo continent: duel between soul masters” has a brilliant performance; Rely on SLG, simulated operation, RPG and other categories to achieve breakthroughs and prolong the product life cycle; In 2021, the average number of manufacturers going to sea ranked sixth, reaching a new high.
The company is running key products: China, “the Chinese mainland: Soul teacher confrontation” was released on the mainland in July 22, 2021, and ranked 10-12 in mainland China’s iOS game bestseller list in July 22, 2021. As the most important product in the market, IP has the highest quality, the best art and drama reduction, and deeply implements the “quality” product strategy. Song of the city on cloud (2020.4 online /MMORPG), the glory Angel (2021.1 on-line /MMORPG), the “Chinese mainland: Wu soul awakening” (2021.3 online / card), “call my big shopkeeper” (2021.5 online / analog operation) four old products 2021Q4 iOS hits the best seller list in mainland China, the average ranking is 59/131/109/56, and the performance is stable. Reflect the long-term operation strength of the company.
In terms of going to sea, doomsday noise ranked 30 / 33 / 34 in the US IOS best seller list and 16 / 16 / 14 in Japan IOS best seller list from October to December 2021; “Beauty of rivers and mountains” ranked 66 / 59 / 59 in Japan’s IOS best seller list; “Song of Cloud City” ranked 22 / 29 / 34 in South Korea’s IOS best seller list, and “call me big boss” ranked 42 / 53 / 66 in South Korea’s IOS best seller list; “The mainland of China: the match of soul masters” is the highest ranking 1/1/1/4/5 in the Hongkong iOS, China Macao, China Taiwan, Singapore and Malaysia, the latest 40/60/63/18/17. From January to February 2022, the old product data well supported Q1 performance, with rich and diversified product reserves, especially overseas reserves
From the perspective of reserve products, the company’s diversification and globalization strategy in 2022 is expected to further. At the end of 21h1, the company announced that it had reserved nearly 30 MMO, SLG, card and sim products, including 18 overseas products, including self-developed card and mobile game code C6. “Twilight plan”, “fortress of the sky: sailing”, “the last primitive man” and “light handed down” have won the Chinese version. Overseas products in the early stage of commissioning or online include “ant Legion ant” (ant theme / easy entertainment development / Europe and the United States), “Three Kingdoms: the glory of heroes” (theme of the Three Kingdoms, tested in Hong Kong, Macao and Taiwan, China), etc.
Judging from the data of January and February 2022, China’s foreign and old products perform well and are expected to form a strong support for Q1 performance. ① China’s key products “Douluo mainland: duel between soul masters”, “song of Cloud City” and “call me big shopkeeper” have ranked 26 / 53 / 63 on average in the IOS best seller list since 2022, which is relatively stable. ② Overseas, from September 2021 to January 2022, the company has ranked the top 5 among Chinese manufacturers at sea for five consecutive months, and its key products performed brilliantly in January. For example, in December 2021, driven by the anniversary celebration of Japanese clothing and Christmas activities, the monthly flow exceeded 280 million yuan, reaching a new high (according to the official website of easy entertainment), and continued its good performance in January, The monthly water flow remained at a high level of about 280 million; Another example is that “song of Cloud City” won the second place in South Korea’s game revenue list in January. In February (the first 22 days), it ranked 19th on average in South Korea’s IOS best seller list, surpassing the 24th in January. Flowing water is expected to further improve month on month.
In terms of industry, according to Gamma data, the actual sales revenue of China’s mobile game market in January 2022 was 22.24 billion yuan, an increase of 20.25% month on month and yoy + 17.76%. The legal holiday for the Spring Festival in 2022 is from January 31 to February 6. Most head games start spring festival activities from the middle and late January. Even considering the mismatch, January 2022 still increases by 4.92% compared with February 2021.
Profit forecast and investment rating: ① in addition to the advantages of RPG, the company has made major breakthroughs in card categories. Douluo mainland: soul master duel marks a solid step in the boutique strategy, reflecting the obvious improvement in planning, art, operation and brand marketing. SLG, simulation operation and other categories also have more product issuance accumulation, Lay the foundation for self-research and breakthrough of relevant categories, and enrich product supply through cooperation forms such as foreign investment and customization; Under the diversification strategy, the income structure is continuously optimized and the performance stability is improved; ② There is still a large space in the overseas market, and the newly emerging channels such as tiktok are in the period of commercial dividend, and the pattern of head overseas manufacturers is not stable. The company is expected to maintain a high growth rate in overseas business in 2022 with the help of the first mover advantage and issuance advantage, as well as the reusable experience of the globalization of popular products such as doomsday noise. As for the issue of distribution of edition numbers worried by the market, first, we believe that edition numbers only affect the performance distribution in the medium and short term, and will not significantly affect the company’s value; Second, under the background of limited supply and stable growth of demand in China’s market, it is expected to force high-quality products and improve market concentration. Based on the above, we expect the net profit attributable to the parent company from 2021 to 2023 to be RMB 2.84/33.1/3.73 billion, corresponding to EPS of RMB 1.3/1.5/1.7 and PE of 17 / 14 / 13X, maintaining the “buy” rating.
Risk tips: public opinion risk, policy risk, increased competition risk, new product launch progress and performance less than expected risk, flow cost rise risk, old product life cycle less than expected risk, version number acquisition progress risk, core talent drain risk, player preference change risk, technology development less than expected risk, corporate governance / asset impairment / lifting prohibition and reduction risk Market style switching risk, industry valuation center downside risk, overseas market related risk, etc.
