2024-06-25 07:01Investment Rating - The report maintains an "OUTPERFORM" rating for the company with a target price of US$116 based on a 15x FY24E core NP valuation [3][27]. Core Insights - The adjustments made to the game "梦幻西游" (Dream of the West) are expected to extend its lifecycle, despite market concerns leading to a stock price decline of over 10% since May 21 [27]. - The negative impacts of these adjustments have already been reflected in Q1 2024, with signs of recovery observed in recent gaming performance [27]. - The company is anticipated to benefit from a rich pipeline of games set to launch in Q3 2024, which could provide significant revenue flexibility [21][42]. Summary by Sections - The economic system of "梦幻西游" has remained relatively stable over the past 20 years, with the average price of in-game currency (梦幻币) maintaining around 237 RMB [28]. - The game employs a unique monetization strategy that includes point cards, transaction commissions, and in-game purchases, with point card revenue being the largest contributor [8][30]. - Recent adjustments aimed at reducing random probability gameplay and item liquidity are intended to combat non-standard trading behaviors and enhance the core gaming experience [39][41]. - The adjustments have led to a recovery in gold prices in over 40% of the game servers, indicating a positive trend for player engagement and potential revenue recovery [32][39].