\u3000\u3 China Vanke Co.Ltd(000002) 555 Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) )
Event: Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) released the report for the first quarter of 2022. The company’s operating revenue in 2022q1 was 4.089 billion yuan, a year-on-year increase of 7.11%; The net profit attributable to the parent company was 760 million yuan, a year-on-year increase of 550.80%; Net profit deducted from non parent company was 762 million yuan, with a year-on-year increase of 1977429%.
Comments: 1) the company’s net profit attributable to the parent company in Q1 in 2022 increased by 550.80% year-on-year, which is mainly due to the different life cycle of game products operated in Q1 in 2021. At the same time, the company’s fine operation has achieved remarkable results, the vitality of stock products has been continuously activated, and overseas businesses have been promoted simultaneously, which has promoted the steady development of the company’s performance. 2) The sales expense of Q1 in 2022 was 2.307 billion yuan, a year-on-year decrease of 17.62%, which was mainly due to the increase in the number of new online game products in Q1 in 2021, the increase in traffic delivery in the initial stage of online, and the gradual recovery of Q1 game business in 2022. We expect that the company’s Q2 profitability is expected to be further enhanced with the improvement of the margin of market competition.
The game entered the payback period, and the performance hit the bottom and rebounded. In 2021, many games such as “glory Archangel” and “Douluo continent: Awakening of Wu soul”, which were newly launched in Q1, have entered a growth period in Q1. The company has continuously polished, optimized and refined its products. The online operation projects have performed well, and the product life cycle has been continuously extended, laying a solid foundation for the steady development of the company’s business, and is expected to accumulate higher revenue in the future.
Overseas business has accelerated again, and remarkable results have been achieved in going to sea. Many games such as Douluo mainland: duel between soul masters, Puzzles & survival, call me the big shopkeeper and song of Cloud City issued for the global market performed well. In 2022, Q1’s overseas market operating revenue exceeded 1.4 billion yuan, a year-on-year increase of more than 45%, and the proportion of the company’s overseas operating revenue continued to increase.
Abundant reserve products, optimistic about the elasticity of performance growth. The company reserves nearly 40 heavy products of MMORPG, SLG, card and simulated operation for domestic and foreign markets. Many reserve games of the company have been issued with version numbers, such as fortress of the air: sailing (as of April 2022, taptap score is 8800 and 49000 people have made reservations), light of the passing down, dawn plan, the last primitive man, etc; In April 2022, the edition was reissued eight months later, and the company’s dream voyage became one of the first batch of key games to receive edition numbers.
Profit forecast, valuation and rating: self-developed products such as Douluo mainland: duel between soul masters have a bright performance, which is expected to provide a strong driving force for performance growth; Overseas business has become the main driving engine of performance growth; The company has abundant product reserves, and we are optimistic about the performance growth elasticity after the reissue of the version number. We maintain the forecast of net profit of RMB 3.226/36.88/4.177 billion for 22-24 years, with a year-on-year increase of 12.2/14.3/13.3%; The current price corresponds to pe17 / 15 / 13X for 22-24 years, maintaining the “buy” rating.
Risk tip: overseas competition may intensify, industrial policies will be tightened, and the purchase cost will continue to rise.
