\u3000\u3000 Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) (002555)
The company released the performance forecast for 2021. It is estimated that the net profit attributable to the parent company will be RMB 2.8 billion to RMB 2.85 billion in 2021, with a year-on-year increase of 1.41% – 3.23%, and the net profit attributable to the parent company after deduction of non profits will be RMB 2.55 billion to RMB 2.6 billion, with a year-on-year increase of 6.61% – 8.70%.
It is estimated that the net profit attributable to the parent company in Q4 in a single quarter is 1.08-1.13 billion yuan, with a year-on-year increase of 115.57% – 125.55%; The net profit attributable to the parent company after deduction was RMB 1.03 billion-1.08 billion, with a year-on-year increase of 133.56% – 144.90%.
Key investment points:
Q3’s performance increased significantly year-on-year, and Q4’s profit reached a new high in a single quarter. In 2021h1, due to the company’s new launch of game products such as Douluo continent: Awakening of Wu soul, glory archangel, 1000 carat queen and call me shopkeeper, the short-term sales expenses increased more, and the high profit base in 2020h1 led to a large year-on-year decline in performance.
With the excellent performance of many game products worldwide, Q3 and Q4 entered the product recovery cycle, and their performance rebounded sharply. Among them, the net profit of Q3 in a single quarter increased by 54.77% year-on-year. It is estimated that the net profit of Q4 in a single quarter significantly exceeded the profit highs of 2020q1 and 2020q2, reaching a record high.
Overseas markets perform well, “globalization” may become one of the company’s core competitiveness. In 2021h1, the company’s overseas operating revenue was 2.044 billion yuan, a year-on-year increase of 11.03%, accounting for 27.12%, the highest in history. With the acceleration of the company’s globalization process and product process, it is expected that overseas regions will continue to contribute to performance increment. Considering that China is in the dilemma of edition number, the proportion of revenue and profits in overseas regions will further increase. Under the current severe regulatory situation in China, the ability to go to sea may become one of the core elements to test the competitiveness of Chinese companies in the future. According to sensortower data, the company ranked sixth in the global revenue ranking of Chinese mobile game publishers in January 2022, second only to Tencent and Netease at the level of listed companies. Its product “Puzzles & survival” ranked No. 6 in the list of China’s mobile travel revenue in January 2022, and “song of Cloud City” ranked No. 23. The company’s ability to globalize is highlighted
There are many product reserves at home and abroad, waiting for the release of the Chinese version number to provide performance flexibility. According to the semi annual report of the company in 2021, the company expects to release 40 reserve products (including duplicate projects) in China and overseas, including 22 in China and 18 overseas, which are arranged around the categories of MMO, SLG, card and simulated operation, including 17 self-developed products and 23 agent products, It is expected that the launch will be reasonably scheduled in combination with the product progress and version number.
Investment advice and profit forecast: the company’s globalization, boutique and diversification strategy has been steadily promoted and gradually reflected in products and performance. Game categories have been broadened, product quality has been improved, and overseas revenue has made a breakthrough. According to the characteristics of game products, a large amount of cost investment is concentrated in the early stage. With the steady growth and release of game products, the profitability of the products is gradually improved, contributing more performance to the company. At present, the version number policy has aroused concerns about China’s game market in the short term and suppressed the overall valuation of the game sector. However, according to new news, the application for game version number is still being accepted, and the distribution of version number is expected to drive the market sentiment to improve. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be 2.838 billion yuan / 3.207 billion yuan / 3.615 billion yuan. Calculated by the closing price of 21.51 yuan on February 22, the corresponding PE will be 16.81 times / 14.88 times / 13.20 times, maintaining the “buy” rating.
Risk tip: game version number policy risk; Product launch progress and market performance are lower than expected; The increase in sales expenses after the launch of new products affects short-term profits
