\u3000\u3 China Vanke Co.Ltd(000002) 624 Perfect World Co.Ltd(002624) )
Events
On April 25, the company announced the annual report of 2021 and the first quarterly report of 2022:
1. In 2021, the company realized operating revenue, net profit attributable to parent company and net profit deducted from non attributable to parent company of 8.518 billion yuan (yoy-16.69%), 369 million yuan (yoy-76.16%) and 102 million yuan (- 90.26%); Realize eps0 19 yuan (yoy-76.25%). At the same time, the company plans to pay 12 yuan out of 10, with a total dividend of 2.29 billion yuan.
2. In the first quarter of 2022, the company realized operating revenue, net profit attributable to parent company and net profit deducted from non attributable to parent company of 2.128 billion yuan (yoy-4.6%), 840 million yuan (YoY + 80.99%) and 414 million yuan (YoY + 30.15%). The net profit was the median value of the previous forecast, in line with expectations.
Comments
The transition period is facing pain, and the performance of 21 years is under pressure.
The company’s game business achieved operating revenue and net profit attributable to the parent company of 7.42 billion yuan (yoy-19.77%) and 720 million yuan (yoy-68.48%, which was expected to be 670690 million yuan); The film and television business achieved operating income and net loss of 950 million yuan and 200 million yuan (the previously expected net loss was 170 million yuan – 190 million yuan); In 2021, the non recurring income was RMB 268 million (previously expected to be RMB 250 million to RMB 270 million), of which the non recurring profit and loss of the game business was about RMB 490 million (mainly from the disposal of some R & D teams) and the non recurring loss of the film and television business was about RMB 260 million (mainly from the decline in the fair value of global film investment).
1. The year-on-year decline of revenue end in 21 years is mainly due to: (1) the game business is in the key stage of strategic upgrading and product innovation iteration, and the poor connection between new and old games puts pressure on the revenue end. On the one hand, the performance of some new explorations is not as good as expected, such as the North American project “magic Legends” shut down by 2q21 and the company’s first mmoarpg mobile game “ares ruins” (running water is not as good as expected and the initial marketing expenditure is large). The above two games have a total loss of about 400 million yuan to 500 million yuan. On the other hand, some games naturally decay with the life cycle (such as Perfect World Co.Ltd(002624) , new Xiaoao Jianghu mobile tour), and the number of games is high under the background of the epidemic last year. At the same time, we expect the flow of end game products such as Zhuxian, perfect international, CS: go and dota2 to be relatively stable. (2) Affected by the suspension of the game version number, the online rhythm of the company’s game products was delayed. (3) “Dream new kill immortal” has contributed important achievements. From its launch on June 25, 21 to the end of the year, the cumulative flow is nearly 1.6 billion yuan, and the annual profit is about 500 million yuan to 600 million yuan.
2. The year-on-year decline in profit in 21 years is mainly due to: (1) the mismatch between income release and expense expenditure. The company is in the period of strategic transformation, trying different tracks and categories. In 2021, the number and investment of games under research increased significantly year-on-year, and a series of incentive measures were issued based on the perspective of medium and long-term development. In 2021, the company’s R & D cost was about 2.21 billion yuan, and the R & D cost rate was about 25.95% (YoY + 7.34 PCT). Quarter by quarter, the company’s R & D expense rate in Q4 in 22 years increased significantly to 48% (YoY + 29.2pct). (2) On December 16, 2021, the mobile game “magic tower” was put into public beta. Due to the mismatch of revenue and cost, there was a certain loss at the statement level in 21 years. It is expected to release the performance in 22 years. (3) Optimize overseas game projects, shut down some overseas game projects whose performance did not meet expectations, and optimize relevant project personnel, resulting in a one-time loss of 270 million yuan. (4) The single investment of Universal Pictures was repeatedly affected by the overseas epidemic, resulting in a loss of 386 million yuan due to the decline of fair value. According to the proportion of fund shares held by the company, the non recurring loss was about 273 million yuan. (5) If the impact of non recurring profits and losses is deducted, the net profit of game business is about 256 million yuan and that of film and television business is about 20 million yuan.
The results of transformation and upgrading showed that 1q22 net profit returned to the growth channel.
1. 1q22 operating income decreased slightly, mainly due to the reduction of consolidation scope. The company sold American R & D studios and relevant local distribution teams in Europe and America, and relevant European and American subsidiaries were no longer included in the scope of consolidation since February 22. After deducting the impact, 1q22 operating revenue increased by 2.34% at the same time. Among them, the operating revenue of game business and film and television business was 1.973 billion yuan (YoY + 23.01%) and 77.317 million yuan (yoy-80.48%) respectively.
2. 1q22 net profit returned to the growth channel, mainly due to (1) the official launch of Perfect World Co.Ltd(002624) : Battle of the gods, an easy vertical 3D mobile game, to maintain the advantages of the company’s classic categories; (2) At the end of the year, the public beta of “magic tower” added more than 10 million users in the first month, and the flow in the first month was nearly 500 million. It was an important attempt of the company to open the world category, and 1q22 gradually released profits; (3) In December 21, the company sold the American R & D and European and American issuance team, completed the delivery in 1q22, and confirmed the non recurring profit and loss of about 400 million yuan. After deducting the impact, the company’s game business deducted non net profit of about 446 million yuan (YoY + 34.52%). (4) 1q22 film and television business realized a net profit of about 22 million yuan.
The dual engine of “China + overseas” is expected to promote the high growth of the company’s performance.
1. China: thanks to the resumption of the issuance of the version number, the certainty of the landing time of China’s product line has been enhanced. The company’s reserved mobile game products include “black cat anecdote society”, “Tianlong Babu 2”, “the kingdom of morning and night”, “one punch Superman: the world”, “million King Arthur”, “Zhuxian 2”, “perfect Shanghai New World Co.Ltd(600628) ,” Shenmo continent 2 “and end game products” Zhuxian world “,” perfect NewWorld “,” havea nice eat “, etc. at the same time, the development of well-known IP games such as Linglong and Fengshen series is also under active preparation. After the release of the version number is resumed, the reserved products will be launched one after another, of which two points deserve attention:
(1) we believe that the mobile games of “Tianlong Babu 2”, “Zhuxian 2” and “perfect Shanghai New World Co.Ltd(600628) ” belong to large IP heavyweight products. After the release of the version number, the landing rhythm will be gradually clear, and the online performance is worth looking forward to;
(2) the end game market is in the stage of strong demand and weak supply. The company holds heavyweight end game products such as Zhuxian world and perfect NewWorld, and is expected to reap large market dividends. After its publication on CJ in 21 years, Zhu Xian world attracted strong attention and discussion, and conducted a small-scale black box test in December 21. The next relatively large-scale test is expected to be released in mid-2022 and is expected to be the first to be launched.
2. Overseas: focus on the two dimensions of “Chinese products going to sea + overseas localization development”. The company’s going to sea in China will gradually transition from authorized third party to independent issuance. There are two types of distribution teams: (1) regional training of local teams. For example, the company’s landing team in South Korea is mainly local people, who are more familiar with the local issuance and landing; (2) China configured global distribution team. It will focus on global brand, purchase volume and advertising. At the same time, the company adjusts the underlying logic of products, which is different from the strong oriental cultural attribute of the company in the past. The company will make major adjustments in the subsequent reserved products. For example, products such as one punch Superman: the world, million King Arthur and spirit cage are more suitable for global distribution, and basically adopt the mode of independent distribution.
The mobile game “dream new kill immortal” was launched on the overseas market on March 17, 2022. At the same time, the overseas release of “magic tower” is worth looking forward to. It has been tested in many overseas places and is expected to be officially launched on the overseas market within the year.
The film and television business has been fully accrued, focusing on slimming and focusing.
On the one hand, the impairment of film and television drama projects previously invested, controlled or participated in by the company has been relatively sufficient; Only 2 films in the global film list have not been released, so the calculation is more cautious; On the other hand, the company is more focused and cautious in the initiation and startup of new projects. Most of the newly launched projects are platform customized dramas, which ensures the certainty of income. Since 21 years ago, the company has produced film and television works, including “Shangyang Fu”, “eye of the storm”, “love under the starry sky”, “we’ll have a good life tomorrow”, “little girl’s neon clothes”, “ideal shines on China”, “warm taste”, “glory and dream”, “high ambition”, “sudden vacation”, “who give me up”, “peak explosion”, “Xiaguang”, “boat of peace”, “glazed tiles in the past”, “Miss Xianqi makes a wish”, “blue flame assault”, etc. At the same time, the film and television works reserved by the company include “the green mountains in the moon are as light as a picture”, “the biography of Yunxiang”, “let your years be quiet”, “stars fall into sugar”, “rock and roll crazy flowers”, “special agent mission” and “brilliant! Brilliant!” “What you want”, “warm and sweet”, “just a Jianghu dream”, etc. We believe that the future profitability of the company’s film and television business is highly uncertain, and it is less likely to drag down the valuation and performance.
The company is an old game company with A-share scarcity and end game R & D strength, which has a comparative advantage in the era of meta universe.
We believe that VR / AR games are closer to PC end games and host games, and the company has corresponding scarce technology and experience. In the future, the company’s meta universe work will be carried out in three steps:
1. Relying on the existing games, build a virtual idol platform, issue NFT, and complete the early technical reserve and experience accumulation. (1) Virtual digital man: in 2020, CS: go launched the official virtual anchor Gubao Longji, and recently launched eternal mother; In October 2021, dota2 launched the official virtual idol dodo; (2) NFT: Recently Perfect World Co.Ltd(002624) E-sports released the first limited digital collection – E-sports theme “cat and dog” digital art card.
2. Realize the deeper accumulation of metauniverse with the help of new games under development. For example, the end tour of the world of killing immortals uses the super real physical engine to create a highly realistic experience of the world of immortals and heroes.
3. Realize the ultimate presentation of the meta universe in the game. Through heavy game products, with the help of digital twins, intelligent AI expansion, virtual digital people and so on, we can realize the infinite extension of game experience in a larger world.
Investment advice
The company is an old game company with A-share scarcity and end game R & D strength. It is expected to benefit from the market environment of strong demand and weak supply in the end game market. At the same time, the company actively arranges game going to sea and meta universe related businesses, which is expected to form a new profit growth point. We expect that from 2022 to 2024, the company’s net profit attributable to the parent company will reach 1.666 billion yuan (YoY + 351.3%), 2.139 billion yuan (YoY + 28.4%) and 2.595 billion yuan (YoY + 21.3%), corresponding to eps0.5% 86 yuan, 1.10 yuan and 1.34 yuan. The current stock price corresponds to 13.92 times, 10.84 times and 8.94 times of the valuation, maintaining the “buy” rating.
Risk tips
Industry competition intensifies and exceeds expectations, game supervision becomes stricter and exceeds expectations, game version number distribution occurs repeatedly, the process of going to sea is less than expected, the online progress or flow performance of new games is less than expected, and the flow decline of old games is more than expected.
