"Game Mao" Gigabit suspended high cash dividends for the first time after its listing, and its net profit has declined for two consecutive years

The performance and stock price were under pressure, and Gigabit's bold dividends for seven consecutive years pressed the pause button

"China Science and Technology Investment", Zhang Ting, He Ziyan

A few days ago, Gigabit (603444. SH) has published its 2023 Annual Report. During the reporting period, the company achieved operating income of 4.185 billion yuan, down 19.02% from the previous year, and net profit attributable to shareholders of listed companies was 1.125 billion yuan, down 22.98% from the previous year, and the net profit declined for two consecutive years. In addition to the performance report, Gigabit also released the announcement of the 2023 annual profit distribution plan. The announcement said that Gigabit intends not to pay cash dividends in 2023, nor will it carry out other forms of profit distribution. Gigabit has suspended a large percentage of dividends for seven consecutive years.

Gigabit has performed well in the capital market in the past few years, and the stock price once jumped to 671.6 yuan per share. In 2023, Gigabit's operating income will decline for the first time, and the consistent dividends will also be suspended.

The performance stock price was under pressure

In 2023, Gigabit will experience its first revenue decline after listing, and its net profit will also decline for two consecutive years. In the annual report, Gigabit summarized three reasons for the decline in performance: first, the revenue of "Ask Dao Mobile Game" has decreased, but the distribution investment is basically the same; second, the revenue and distribution investment of "Yi Nian Yao" have decreased significantly, but the income has decreased more; third, "Flying Dragon Knight", "Super Evolution Story 2" and "Pikatang" were launched at the end of last year and are still in a state of loss, while "Obi Island" has just turned losses into profits.

Gigabit's main income comes from the two games "Ask" and "One Thought Away". The current performance also confirms that Gigabit has mentioned the risks associated with a high reliance on the two products. The financial report reminds that if a large number of gamers change their preferences for "Ask Dao Mobile Game" and "Yi Nian Yao" or choose other online game products on the market, and the company cannot accurately grasp the development trend of game products in the future, it will lead to a decline in the revenue generated by the game, which will have a material adverse impact on the company's operating performance and financial condition.

According to the "2023 China Game Industry Report", although the number of game users in China increased by 0.61% year-on-year, a record high, the number of users has increased by less than 1% year-on-year for three consecutive years. This means that the current game market is difficult to attract new traffic and incremental markets, and is facing fierce competition for stock. In the stock game, Gigabit's main products have shown a certain degree of fatigue, and its other products are still in the market cultivation period, which needs to continue to increase investment, and the Gigabit game business has appeared in the phenomenon of green and yellow, and the competition situation to be faced in the future is more severe.

Gigabit's cost of sales has also compressed the company's profitability to a certain extent. From 2018 to 2022, Gigabit's sales expenses rose from 134 million yuan to 1.402 billion yuan, an increase of 90.44% during the period, and in 2023, Gigabit's sales expenses will be 1.127 billion yuan, a year-on-year decrease of 19.58%. The decline in sales expenses was due to a significant decrease in the investment in the issuance of products such as "Yi Nian Yao (Mainland Version)" compared with the same period last year. Despite this, Gigabit's selling expenses accounted for 26.93% of revenue. Higher selling expenses also put pressure on Gigabit's margins. Flush data shows that from 2018 to 2022, the company's net profit margin will be 55.50%, 49.13%, 48.56%, 37.94%, and 37.92% respectively, declining for four consecutive years, and its net profit margin will be 34.91% in 2023, a decrease of 3.01 percentage points compared with the same period last year.

Secondly, Gigabit also needs to face the risk of performance impact caused by the implementation of new regulations in the future. In December last year, the National Press and Publication Administration issued a notice on publicly soliciting opinions on the Measures for the Administration of Online Games (Draft for Solicitation of Comments) (hereinafter referred to as the "Draft"), proposing such content as "all online games shall not set up inducing rewards such as daily login, first top-up, and continuous top-up;

According to the "2023 China Game Industry Report", the monetization models of Mini Program games at this stage mainly include three types: in-app purchase payment, advertising monetization, and hybrid monetization. Due to the rapid increase in the proportion of in-app purchases, the scale of the mini game market has grown rapidly. Not only do game companies rely on advertising and recharge business, but the monetization of Mini Program games is also getting closer to the direction of "krypton gold" and advertising. At present, top-up and advertising have become the most powerful sources of profit for game companies, and the implementation of the content regulated in the Draft Opinion may further weaken the profits of game companies.

At the same time, the "Opinion Draft" also caused game stocks to fall collectively, and on the day of the release of the "Opinion Draft", the Gigabit stock price once fell to the limit. However, since 2023, Gigabit's performance in the capital market has not been satisfactory, especially since June 2023, Gigabit's share price has continued to decline.

At the recent performance briefing, Lu Hongyan, the actual controller and chairman of Gigabit, said that the content of the "Opinion Draft" itself will not have a substantial impact on the industry. Before the Draft Opinion is implemented, the company will also avoid these problems when making products. Therefore, the implementation situation depends on the competent authority, and at present, the impact of the implementation of the Draft Opinion on the industry is limited, or the impact is positive and positive.

As of April 8, the closing price of Gigabit was 178.22 yuan / share, down nearly 70% from the high point of 582.69 yuan / share in recent years.

Many years of large dividends have caused controversy

Previously, Gigabit has been known for its "generous dividends" in the secondary market. The announcement mentioned that the suspension of the 2023 annual dividend is due to the continuous increase in the company's R&D investment in recent years, the intensification of market competition and the change in players' willingness to consume, etc., the company's core product turnover has declined, and the above-mentioned factors and the possible issuance investment of follow-up reserve projects, overseas business development funds, repurchase plan implementation funds and other reasons.

At the same time, Lu Hongyan said at the performance briefing that the company hopes to reserve more funds for research and development, and the dividend may be slowed down to the interim or third quarter report to evaluate whether to proceed. Although Gigabit does not plan to pay cash dividends at the end of 2023, it has completed the 2023 semi-annual cash dividends on September 27, 2023, totaling 504 million yuan, accounting for 44.82% of the company's net profit attributable to the parent company for the whole year of 2023. In August 2023, Gigabit released the 2023 semi-annual report and dividend plan, the company achieved current revenue of 2.349 billion yuan, a year-on-year decrease of 6.44%, and a net profit of 676 million yuan, a year-on-year decrease of 1.8%.

Generous dividends have always been a tradition for Gigabit. From 2021 to 2022, Gigabit's annual dividends will be 1.15 billion yuan and 1.2 billion yuan respectively, accounting for 78.3% and 83.63% of the net profit attributable to the parent company, respectively. In the profit distribution plan for the first three quarters of 2022, Gigabit distributed 1.006 billion yuan in cash, accounting for 99.45% of the net profit attributable to the parent company in the current period. Since its listing in January 2017, Gigabit has implemented large cash dividends every year, with a cumulative dividend of 5.297 billion yuan, while the actual controller Lu Hongyan holds 29.72% of Gigabit's shares, with a cumulative dividend of 1.574 billion yuan.

On the issue of Gigabit dividends, the market has different opinions. The release of the dividend plan, Gigabit's share price fell by more than 5%, and some investors questioned that Gigabit used the "negative" news of slowing down dividends to lower the stock price, bringing convenience to the company's repurchase of shares at a low price. Previously, some investors expressed their hope that Gigabit would reduce dividends on the SSE interactive platform. There are also investors in the stock bar who question that Gigabit pays such a large amount of dividends every year, which is actually one of the means for major shareholders to cash out.

It is worth mentioning that from May 29 to June 20 last year, Lu Hongyan planned to reduce the number of shares of the company by a total of 216,900 shares through centralized bidding and block trading on the Shanghai Stock Exchange, with a price range of 526.8 yuan to 575.3 yuan, with a total amount of about 119 million yuan. In October 2023, Gigabit disclosed the early termination of the shareholding reduction plan, saying that based on the overall judgment of the company's stock price, the current market environment, and confidence in the company's future development prospects, Lu Hongyan decided to terminate the shareholding reduction plan ahead of schedule. The actual controller reduced his shareholding at a high stock price and terminated the reduction when the stock price fell, which also attracted the attention of the market.

In addition, Gigabit's grandson company Thunder Co., Ltd. (873228. NQ), like Gigabit, also has a tradition of large dividends every year. In 2023, Thunder shares will achieve operating income of 3.863 billion yuan, a year-on-year decrease of 20.16%, and net profit income of 840 million yuan, a year-on-year decrease of 32.62%. The company intends to distribute a cash dividend of 240 yuan (tax included) for every 10 shares, and the equity distribution is expected to distribute a cash dividend of 720 million yuan.

Thunder shares have been listed on the New Third Board for six years, with high dividends twice a year, but looking at its basic information, it is found that Thunder shares have 0 financing, 0 additional issuance, and 0 allotment in the past six years, and there are only 2 shareholders, namely Xiamen Thunder Interactive Network Co., Ltd. (hereinafter referred to as "Thunder Interactive") and natural person Zhai Jian. Including this dividend, the cumulative dividend of Thunder shares reached 3.5 billion yuan. According to the enterprise investigation, Thunder Interactive, a wholly-owned subsidiary of Gigabit, holds 60% of the shares of Thunder Shares, and has received a cumulative dividend of nearly 2.1 billion yuan according to the shareholding ratio.

According to Article 1 of the Announcement of the Ministry of Finance, the State Administration of Taxation and the China Securities Regulatory Commission on Continuing to Implement the Differentiated Individual Income Tax Policy on Dividends and Dividends of Companies Listed on the National Small and Medium-sized Enterprise Share Transfer System, shareholders of companies listed on the New Third Board who hold shares for more than one year are exempt from individual income tax on dividends. In other words, nearly 2.69 billion yuan of Thunder share dividends can be exempted from personal income tax. Therefore, some investors also questioned the large dividends of Thunder shares every year, and shareholders may be suspected of using rules to avoid taxes and use high dividends to cash out.

The reporter sent a letter to Gigabit about performance, dividends and other related issues, but so far, no reply has been received.