Investment Rating - The report initiates coverage with a "Buy" rating for the company [13]. Core Viewpoints - The company has established a diversified business system covering platforms, games, and social interactions, with a solid foundation in the internet cafe management platform and a focus on AI and social gaming to expand its market potential [4][9]. Summary by Sections Company Overview - The company started as an internet cafe management platform and has gradually developed into a scene-based pan-entertainment platform, with a multi-faceted business system that includes platform services, gaming, and social interactions [4][9]. Platform Business - The internet cafe industry is expected to grow steadily, with the online service industry projected to increase from approximately 50 billion in 2023 to around 90 billion by 2024. The company's platform, 易乐游, holds a leading position in the market with a market share of 32.7% as of 2018 [10][66]. Gaming Business - The gaming segment is anticipated to see stable growth, with existing IP games maintaining strong performance and new titles like "真·三国无双 天下" expected to launch in 2025. The self-developed game "星之翼" has shown promising results, indicating the company's capability in game development [11][39]. Social Business - The company has a competitive edge in the social gaming sector with products like "带带电竞" and "给麦," which leverage AI to enhance user experience and create diverse monetization opportunities. The potential for overseas expansion in AI social products is also highlighted [12][39]. Financial Analysis - The company experienced a revenue decline of 14.56% in 2024, attributed to the absence of new IP games and a slight decrease in revenue from major products. However, a significant recovery was noted in Q1 2025, with a revenue growth of 24.16% [33][39]. Future Outlook - The company is expected to see a turning point in performance in 2025, driven by stable revenue from existing games and growth in social products. The forecasted net profits for 2025-2027 are 152 million, 202 million, and 245 million respectively, with corresponding EPS of 0.31, 0.41, and 0.50 [13][39].

Group 1: Company Performance and Financials - In Q1 2025, the company achieved a revenue of 315 million CNY, representing a year-on-year growth of 24.16% [12] - The net profit attributable to shareholders was 25.43 million CNY, showing a significant increase of 78.56% year-on-year [12] Group 2: Game Development and International Expansion - The company is focusing on overseas expansion in both social and gaming sectors, with key products like "Star Wings" being launched in Japan, Korea, and Southeast Asia [3][5] - "Star Wings" achieved significant success in Japan, ranking second on both Google Play and App Store in its first month, and contributing over 60% to the company's revenue from games in Japan by 2025 [3][5] Group 3: AI and Technology Integration - The company is leveraging its VRACE AI platform to enhance game and social experiences, exploring applications in virtual companionship, content generation, and player behavior analysis [4][15] - The AI-driven social app "Give Mai" integrates multi-modal AI technologies, achieving breakthroughs in emotional analysis and voice recognition [16] Group 4: Strategic Partnerships and IP Development - The company is deepening collaborations with international IP partners like Koei Tecmo to extend the lifecycle of core IPs such as "Three Kingdoms" and "Dynasty Warriors" [3][10] - A partnership with "Koto's Frame Arms Girl" has been established to enhance the IP attributes of "Star Wings" through character and item collaborations [7][8] Group 5: Future Goals and Market Strategy - For 2025, the company aims to drive growth through AI innovations, focusing on content creation and expanding into new entertainment scenarios [9][10] - The company plans to explore acquisition opportunities in gaming, social, AI applications, and AR/VR sectors to strengthen its market position [10]

Core Viewpoint - The company experienced a decline in overall performance in 2024, but showed signs of recovery in Q1 2025 with new product launches and positive growth metrics [1][2][3]. Financial Performance - In 2024, the company reported revenue of 1.136 billion yuan, a year-on-year decrease of 14.56%, and a net profit attributable to shareholders of -261 million yuan, a decline of 253.84% [1]. - For Q1 2025, the company achieved revenue of 315 million yuan, reflecting a year-on-year growth of 24.16%, and a net profit attributable to shareholders of 25 million yuan, an increase of 78.56% [1]. Asset Impairment and Challenges - The company's 2024 performance was pressured by asset impairment, with a net profit of -263 million yuan in Q4 2024, primarily due to an asset impairment loss of 268 million yuan [2]. - The impairment was driven by declining revenues from subsidiary Tianxi Interactive's products, leading to a goodwill impairment provision of 219 million yuan, and underperformance of new products [2]. New Product Launches and Growth Prospects - In Q1 2025, the company returned to a growth trajectory with several new products expected to launch within the year [3]. - The game "Star Wings," developed by an invested company and released in Japan in November 2024, achieved significant success, ranking second on both Google Play and App Store, with over 60% of monthly revenue coming from Japan [3]. - The self-developed IP fighting game "True Three Kingdoms: The World" is currently in the review stage and is expected to launch in 2025 [3]. AI Application Development - The company is actively investing in AI applications, with continuous iterations on its core product "Give Mai," which introduced features like "AI-generated songs" and "AI music greeting cards" in Q1 2025 [4]. - In the gaming sector, the self-developed AI mini-game "Word Spirit Legend" has integrated Doubao AI, and the AI social reasoning mini-game "Secret Bomb" has completed internal platform testing [4]. Revenue and Profit Forecast - The company forecasts revenues of 1.51 billion, 1.74 billion, and 1.95 billion yuan for 2025-2027, with year-on-year growth rates of 33%, 15%, and 12% respectively [5]. - Net profits are projected to be 154 million, 176 million, and 205 million yuan for the same period, with growth rates of 159.26%, 14.14%, and 16.40% respectively [5]. - The price-to-earnings ratios are expected to be 38x, 34x, and 29x for 2025-2027 [5].

Group 1: AI Product Development - The company launched the AI-native music social app "Ge Mai" in 2023, which integrates AI applications for music socializing and creation, achieving breakthroughs in emotional analysis, voice, and text recognition [2][5] - The company plans to introduce AI virtual human features, including AI companions and emotional consultants, enhancing user interaction in social scenarios [3][4] Group 2: AI Strategy and Infrastructure - The company has established a comprehensive AI platform covering application, model, and infrastructure layers, with the AI Innovation Lab founded in 2023 to drive deep integration of AI technology [4][6] - The company has developed its own cloud and computing infrastructure, achieving ultra-low latency of 0-20ms and creating a flexible computing pool to support AI inference needs [6] Group 3: Game Development and IP Strategy - The company is collaborating with international IP partners like Koei Tecmo to develop derivative products and extend the lifecycle of core IPs such as "Romance of the Three Kingdoms" [8][9] - The original IP game "Star Wings" was launched in Japan in November 2024, with plans for releases in Korea and Southeast Asia in 2025, achieving over 60% of monthly revenue from Japan [9][10] Group 4: Financial Performance and Future Outlook - In Q1 2025, the company reported a revenue increase of 24.16% year-on-year, driven by significant growth in advertising and game distribution revenues [12][13] - The company has over 1 billion in cash reserves, providing a solid financial foundation for future development and potential mergers and acquisitions [13] Group 5: Challenges in Overseas Expansion - The company faces challenges in overseas markets, including complex regulatory policies and cultural preferences, which could hinder product acceptance and launch [11] - To mitigate risks, the company has formed specialized operational teams to study target market regulations and user needs [11]