Sanqi Mutual Entertainment (002555) Annual Report Comment: High-speed Growth of Operating Income Self-Research + Operation Capability Appears

Sanqi Mutual Entertainment (002555) Annual Report Comment: High-speed Growth of Operating Income Self-Research + Operation Capability Appears

Event: The company released its 2018 annual report and 2019 first quarter report.

In 2018, the company achieved operating income of 76.

33 ppm, an increase of 23 per year.

33%, net profit 10.

09 billion, down 37 every year.

77%; net profit after excluding non-recurring gains and losses4.

75 ppm, a decrease of 54 per year.

70%; basic profit income is 0.

47 yuan; a cash dividend of 2 for every 10 shares.

00 yuan (including tax).

The company’s operating income for the first quarter of 2019 was 32.

47 million, an increase of 95 per year.

46%; Net profit 4.

54 ppm, an increase of 10 per year.

80%; net profit after excluding non-recurring gains and losses4.

1.7 billion, an increase of 6 every year.

41%; basic profit return is 0.

21 yuan.

Key points of investment: Subsidiary’s performance is not up to standard and accrual of goodwill impairment leads to a significant increase in net profit for 18 years.

As the subsidiary Shanghai Mojing Technology failed to meet its performance commitments, the impairment loss on goodwill was provided9.

60 mega-digit compensation section 4.

54 million US dollars was recognized as non-recurring gains and losses, as the amount of impairment significantly exceeded the performance compensation and the operating profit of Shanghai Mo Yan, which affected the net profit attributable to mothers by approximately 5.

US $ 0.6 billion, resulting in a significant increase in the company’s fourth quarter net profit.

At the 杭州桑拿网 same time, the company disposed of the shares of companies such as Shanghai Yuanyuan Culture and Shanghai Aurora Network in 2017 and confirmed after-tax investment income2.

00 ppm and no significant distribution gain in 18 years.

After exceeding the above impact, the company’s non-GAAP net profit increased by 6.


The proportion of mobile game operating income increased again, becoming the company’s main source of profit.

The company’s mobile games realized operating income of 55.

82 ppm, a 69-year increase of 69.

99%, gross profit 45.

180,000 yuan, an increase of 79 in ten years.

89%, accounting for 73% of operating income.

13%, an increase of 20 from 17 years.

07 averages.

Web games achieved operating income16.

46%, down 28 each year.

40%, gross profit 11.8.3 billion, down 23 annually.

00%; operating income accounts for 21.

56%, a decrease of 15 from 17 years.

59 averages.

The company has more than 5 products with monthly sales of over 100 million in 2018, with a maximum monthly flow of 9.

300 million US dollars, more than 1 new registered users.

100 million, with the highest monthly active users exceeding 20 million.

The company’s performance growth rate exceeds that of the industry and ranks among the top global game companies.

According to the “2018 China Game Industry Report”, the actual sales revenue of the domestic game market doubled in 20185.

3%, the actual sales revenue of mobile games increased by 15 per year.


The growth rate of the company’s overall operating income in the game business and the increase in operating income of the mobile game business exceeded the industry average.

At the same time, the company’s domestic mobile game business totaled 86.

USD 8.3 billion, an increase of more than 85% in one year, which is also higher than the industry level.

The company’s current market share in the domestic mobile game business has increased6.


According to the statistics of NEWZOO, the number of global listed game companies is 10.

US $ 9.1 billion (NEWZOO statistics) revenue ranks 22nd in the world, ranking up 3 places from 2017, second only to Tencent and NetEase among domestic game companies.

“Release + self-developed” walk on two legs.

Based on its ability to operate multi-category games, the company’s distribution strategy has been adjusted from the original relatively single “ARPG + SLG” to “multiple development”, and is well-known in China with Aurora Networks, Tencent, Netease, Perfect World, Century Huatong, etc.Game manufacturers cooperate in depth to complete a diversified industrial layout. The product matrix includes ARPG, MMO, card, SLG and other types, which can cover magic, western fantasy, oriental fantasy, adventure, cultivating fairy, two-dimensional, etc.

The company’s reserve items include 9 exclusive agency games including “Sword and Reincarnation”, “Pig and Dungeon”, “Fairy 2 (tentative name)” and “Super Ball (tentative name)”, “Codename YZD”, “Legend”, “Elf Festival” and other self-developed product self-research, since the launch of self-developed products in 2014, the company has switched to launching nearly 20 self-developed products.

In 2018, the company launched more than 10 self-developed mobile games. Among them, products such as “Continental” H5 and “Sword Passed to the World” achieved monthly sales of over 100 million.

During the product promotion period, the sales expense rate increased, and profits were under short-term pressure.

The company’s selling expenses in 2018 were 33.

47 ppm, an increase of 75 per year.

41%, accounting for 43 of operating income.

85%, an increase of 13 over 17 years.

02 units; selling expenses for the first quarter of 2019 were 21.

41 trillion, an increase of 299 per year.


The significant increase in selling expenses was mainly due to the promotion period of products such as “Ghost Wonder City”, “Angel Sword H5”, “Awakening of the Fairy” and “Breaking the Dragon”.The pressure of early high promotion costs on short-term profits is expected to gradually enter the mature stage of related products, which will have a positive effect on the company’s profits.

The management fee for 2018 was 2.

46 trillion, down 27 a year.

73%, the first is that the company incurred equity incentive expenses in 1 year.

100 million and no related costs incurred in 18 years; R & D costs increased by 23.

28% to 5.

37 ppm, mainly due to the increase in game research and development staff and budget growth.

The divestiture of auto parts business will help improve the company’s overall gross profit margin.

The company started in 2018.

The 19 trillion transaction consideration will transfer the 100% equity of Wuhu Rongshun Auto Parts Co., Ltd. held externally, and complete the industrial and commercial change registration on November 29, 2018.In the future, Rongshun Co., Ltd. will no longer separate the scope of the company’s consolidated statements.

As the gross profit margin of the auto parts business is far lower than the gross profit margin of the company’s gaming business, the auto parts business will help to increase the company’s overall gross profit margin and focus on the development of the gaming business.

Investment rating and profit forecast: In the cold winter of the game industry in 2018, when the industry’s growth rate changes, the company’s operating income has grown rapidly and exceeded the overall level of the industry. There are a number of products with monthly sales of more than 100 million yuan, showing the company’sStrength and rich experience, but in the short term, the company’s newly launched products still need to expand a large number of sales expenses for related promotion work, so the company’s profit margin will still be suppressed in the short term.

It is expected that the company’s EPS in 2019 and 2020 will be 0.

86 yuan and 1.

04 yuan, according to the closing price of 12 on April 29, 2019.

Calculated at 97 yuan, the corresponding PE is 15 respectively.

0 times and 12.

5 times.

Maintain the company’s “overweight” investment rating.

Risk warning: stricter policy supervision; product launch progress and market performance are less than expected; risk of core staff turnover