Bank of China Securities released a research report saying that due to NetDragon (00777) game revenue growth faster than expected and the increase in gross margin, the company's overall profit level was not much different from the bank's previous expectations. The bank expects NetDragon's net profit to be 10.24/12.11/1,353 billion yuan in 2024/25/26, maintaining a “buy” rating. The company's Magic Domain IP has strong vitality, and education tablets are starting to monetize SaaS.
BOC Securities's main views are as follows:
Game revenue has achieved high single-digit growth, and Magic Domain IP has strong vitality.
In 2023, the company's game and application service revenue was 4.19 billion yuan, +6.6% year-on-year, accounting for 59% of revenue; operating profit was 1.4 billion yuan, +12.9% year-on-year. Among them, game revenue was 3.8 billion yuan, +9.6% year over year; domestic/overseas game revenue was +10.5%/+4.5% year over year, respectively; and PC game/mobile game revenue was +11.1%/2.0% year over year to 32/59 billion yuan, respectively. “Magic Domain” IP revenue was +12.4% to 3.4 billion yuan. Through high-frequency launch of new gameplay, new content, and improved player experience, the average gaming time of Magic Domain IP users was +50.4% YoY in 2023. “Soul Blade” IP revenue increased 5.8% year over year. In 2024, the company plans to launch new Magic Domain IP content and new types of games, and expand its share in markets such as Japan, the Middle East, and Indonesia.
The gross margins of both major businesses have increased, and investment in R&D has increased.
In 2023, the company's gross profit margin was 61.9%, +7.1 ppts year on year; of these, the gross profit margin of the game and application service business was 88.5%, +2.6 ppts year over year, and myND.AI's gross profit margin was 25.0%, +1.3 ppts year over year. Sales/management/R&D expenses were 11.4%/16.9%/19.5%, respectively. Cash flow from operating activities in 2023 was 1.1 billion yuan, +4.2% year-on-year. The final dividend for 2023 was HK$0.4 per common share. Together with the interim dividend, the total dividend for the year reached HK$1.8 per common share.
NetDragon actively lays out the application of AI technology in business.
The usage rate of AI in game art production increased from 14% in 23Q1 to 58% in 23Q4, and the labor cost saved by using AI in 23Q4 increased 300% compared to 23Q1. Furthermore, in 2023, the company made significant progress in developing an AI companion base in MOBA games, and AINPC is expected to be integrated into new open world MMORPG games in the future.