CICC released a research report maintaining its net profit attributable to shareholders forecast for XD INC (02400) at RMB 1.65/1.95 billion for FY25/26. The current stock price corresponds to 21x/18x FY25/26 P/E ratios. The firm maintains its Outperform rating, citing TapTap's monetization capabilities and future strategic positioning that warrant a valuation premium. The target price has been raised 14% to HK$93.7, corresponding to 25x/21x FY25/26 P/E, representing 16% upside potential.
CICC's main viewpoints are as follows:
Performance Broadly In Line with Profit Alert and Expectations
The company's H1 2025 revenue increased 39% year-over-year to RMB 3.08 billion (guidance of no less than RMB 3.05 billion), with interim profit surging 223.5% to RMB 811 million (guidance of no less than RMB 790 million). Net profit attributable to shareholders jumped 268% to RMB 755 million, while adjusted net profit rose 235% to RMB 796 million. Overall performance aligned with the firm's expectations.
Gaming: Significant Overseas Growth for "Ragnarok M: Eternal Love Novice Edition", Commercial Acceleration for "Heartopia", Second Half Focus on "Project Escher"
The company's H1 2025 gaming revenue increased 39% year-over-year to RMB 2.07 billion. Management indicated this was primarily driven by strong performance from "Ragnarok M: Eternal Love Novice Edition", "Heartopia", and "Torchlight" games. Looking ahead, the firm believes attention should be paid to existing games: 1) "Heartopia's" accelerated commercialization in the second half, along with PC version and overseas version increments (company indicated early 2026 launch); 2) "Ragnarok M: Eternal Love Novice Edition's" H2 2025 performance in other overseas markets. For new games, focus areas include: 1) "Project Escher" launching in mainland China on September 25; 2) "Ragnarok Online: Love at First Sight" year-end testing and 2026 planning.
TapTap: Platform Scarcity Highlighted, Continuous Monetization Potential Development, PC Version/Mini-Games Expected to Drive Future Growth
The firm believes positive operating leverage drives profit margin improvement through revenue growth, demonstrating strong overall profitability. Community ecosystem upgrades have enhanced user engagement. While MAU remained relatively flat year-over-year (Chinese version: 43.625 million users, up 1%), user activity levels have improved (CEO publicly shared in early August that platform DAU increased 11% over the past 12 months). From a community ecosystem perspective, the company promoted more games to integrate TapSDK and ecosystem services in H1 2025 to achieve data connectivity, feeding user data back into the community to drive differentiated content creation and further upgrade the community ecosystem.
Algorithm Technology Upgrades Deepen Commercial Monetization
Management stated that by upgrading the advertising system's foundational model and improving advertising effectiveness, Tap revenue increased 38% to RMB 1.01 billion. From an industry perspective, the firm believes Tap possesses scarcity value among gaming user acquisition platforms and is positioned to gain greater market share through continuous internal upgrades and external supply enrichment.
Expansion Directions: The company launched TapTap PC version and TapTap mini-games in April and July respectively this year. The firm believes the PC version could enhance multi-platform gaming synergy, securing additional advertising budget increments while better serving users comprehensively. The mini-games initiative may lay the foundation for future AI game creation as development barriers lower. Regarding TapADN (an advertising alliance platform for game developers providing monetization and user growth solutions), management indicated during the earnings call that it is currently in early development stages, with a potential market size of several billion yuan.