The company released 2022 interim report, the company achieved operating revenue of 16.711 billion in the first half of 2022, down 24.43% year-on-year; achieved net profit of 74 million, down 98.55% year-on-year; achieved net profit of 239 million, down 44.74% year-on-year.
The income side was under pressure due to the epidemic, and the profit performance was affected by fair value change gains and losses. The gross margin was 5.89% (-0.62pct) in 2022H1, and the selling expense ratio, management expense ratio and R&D expense ratio were 2.46% (+0.81pct), 1.50% (-0.58pct) and 0.17% (+0.08pct), respectively. The gross margin level was relatively stable and the expense ratio did not change much. The significant decline in profit side is related to the large net loss from holding financial assets, with fair value change gain/loss of -178 million in 2022H1 (yoy+76.62%), and the net profit after excluding its impact is 239 million, down 44.74% yoy.
Overseas business is the core fundamentals, and we are concerned about the demand of buying volume driven by new games coming online. By business, the revenue of offshore business in the first half of 2022 is nearly 12 billion, accounting for nearly 71.8%, offshore business is still an important support for the company’s performance. By industry customers, revenue from game customers in 2022H1 was 7.897 billion, accounting for 47.26%, down 16.35% year-on-year; revenue from e-commerce customers was 3.965 billion, accounting for 23.73%, up 6.3% year-on-year; revenue from internet and application was 2.321 billion, accounting for 13.89%, down 43.89% year-on-year. We deduce that the company’s game revenue has declined due to the restrictions on the Chinese version number and the delay in the launch of some new games, we suggest paying attention to the demand for buying volume driven by the launch of new games; while the revenue of e-commerce industry still maintains strong resilience in the context of the impact on China’s logistics.
Metaverse marketing is gradually commercialized, which is expected to continue to strengthen the competitive barrier. Since 2021, the company has been promoting the metaverse business through self-built, investment and M&A as well as cooperation, and has completed the layout of metaverse of “people, goods and fields” and commercialized many business lines: 1) People: launched virtual human IP such as Su Xiaomei/K, and started cooperation with brands such as Ping An Bank Co.Ltd(000001) . (2) goods: virtual goods platform MEME was launched on April 7, and has issued 12 issues of digital collections for many brands; (3) field: Blue Universe landed in Xiyan, XR studio was put into use, and has started cooperation with many brands. (3) Field: Blue Universe landed in Xiyang, XR studio was put into use, and has already cooperated with many brands. The company is the first to lay out in the metaverse marketing business, overlaid with rich quality customer resources co-creation, is expected to continue to consolidate its marketing leader barriers, and take advantage of new business opportunities to increase market share.
Investment advice: the company as China’s leading marketing, with a more complete marketing industry chain layout, rich customer resources and deep insight into the consumer, the company on the one hand is still expected to maintain the high growth of the sea business, on the other hand, through the first landing of marketing services related to the metaverse to seize the incremental space of the marketing industry, thereby increasing the market share, and continue to strengthen the company’s advantages as a leading marketing. Short-term impact of the epidemic factors and investment income uncertainty, we lowered earnings forecast, is expected to 20222024 attributable net profit of 389583/783 million yuan, corresponding EPS of 0.16/0.23/0.31 yuan, give the company 30 times PE in 2023, corresponding to the 12-month target price of 6.9 yuan, maintain “Buy-A” rating.
Risks: The outbound business is affected by the epidemic; the outbound market business growth is not as expected; the advertiser budget growth is not as expected; the progress of the meta-universe business segment is not as expected.