Recent Portfolio Actions. New Initiation?

 It wasn't that long ago that i wrote and updated my portfolio back on 9 April.  

(The HSI has increased by close to 8% since 9 April)

The returns then was 10.77%. Many things happened since then and now we are in June. The returns this year at this point is actually pretty similar to last year if i remember correctly......which is good. Last year in the second half of the year there was not much sizable movements or additions.

This year, I had intended to take a more wait and see approach as well....but i have decided to make some changes to the portfolio nonetheless

(All Guns Blazing, Lets Go)

I added a new stock to the portfolio. I am not sure if i could say this is a 'New Addition' because I have held this stock before and I have made money and lost money in the stock before......

Based on the game above, i am not sure if you can tell what company it is.......but perhaps the picture below will give you a better idea.

Yup i am welcoming back an old friend / joker. That is IGG (Hkex:799). It is a stock that i have been keeping tabs on for maybe 1 year plus even after i divested it at a loss back in 2022.

The thesis right now is different from when i bought it in 2021. Right now I think that it is a stock that has a new source of business revenue, some revenue diversification as well as usage of AI to cut cost. At a forward Estimated PE of less than 6, it is a stock that has interested me.

Some current details of the stock. Its Market Cap is currently 3.5 billion.

1) FY 2023 looks not impressive but 2H 2023 showed good profitability. 

Net Profit for its Core Business 

FY 2023: 17 million

1H 2023: -360 million

2H 2023: 373 million

Revenue

FY 2023: 5.265B

1H 2023: 2.499B 

2H 2023: 2.766B

This return to profitability can be attributed to reduced selling and distribution expense and lower cost of revenue.

It is worth noting that the 2H Profitability is done when Lords Mobile recorded a lower revenue of 1.45b in 2H 2023 compared to 1.65b in 1H 2023.

When we add that the revenue in 1Q 2024 is 1.4 billion , I think there is a good chance of this earnings being sustained.

2) App Business 

A shining spot for its recovery in revenue is due to its APP Business. Which IGG said on its earnings release presentation that it was 10 years in the making and it is still confidential and as such not much details are given on what are the apps apart from the revenue is being generated via ads.

App Business Revenue

1H 2023: 0.189B Average 33 million HKD

2H 2023: 0.390B Average 65 million HKD

However, management reviewed that they have decided to remove some apps that are more susceptible to regulations and are also less profitable in Jan, this has led to a change in focus and business model of the types of apps the have as well. This has led to the January 2024 App Revenue to fall to around 39 million HKD. In March 2024, the business has shown good recovery and recovered to 62 million HKD. In April 2024, it is close to 78 million HKD.

As such, it will be interesting to see how it does in May and June and as a whole the trajectory.

It is also worth noting that despite lower revenue in 1Q 2024, the company's revenue still is much higher.

3) Use of AI

The company has also mentioned that they have been using AI in their work to reduce the research and development cost as well as operating cost.

For example, computer art is now done by AI and development of apps can be done by 10+ people instead of 60-70 previously thanks to AI.

In terms of operating , it has cut down the amount of customer support required and helped in translations and coding. 

Similarly Operating Expenses has came down as well compared to 2022. 

4) Other Business Supporting

2 Games that have done decently in 2H 2023 would be Doomsday and Viking Rise.

Dooms Day

1H 2023: 0.249B

2H 2023: 0.428B

Viking Rise

1H 2023: 0.122B

2H 2023: 0.285B

Management guided that Doomsday has hit 100 million revenue in March 2024. As such, it would be interesting to see the growth trajectory as a whole.

Conclusion

I believe profits should be better than the 373 million unless too much of the revenue is spent on aggressive marketing. Nevertheless, Doomsday has continued to grow and the APP Business might surprise on the upside as it does not have the 30% distribution of its revenue unlike its gaming apps which will continue to contribute better gross profit.

A Positive Profit Alert is almost guaranteed but how much the amount will likely decide the share price movement.

A Citi Report gave a TP of $4 with a full year profit of 696 million in 2024. I believe there is a good chance that the company will earn above this amount.

I have been wrong before so yeah, sometimes i question if i have to pick up this stock but i have decided to trust my research and go for it.

However, given that I am actually not cash-rich, i have divested some Huationg Global to allocate into this position. 

Previously i have added more Huationg at a relatively high price in an attempt to enter the top 20 shareholders in the annual report for my own yaya papaya pride. Now that portion is over as the annual report is already out long ago, i have decided to trim slowly back to the initial core holdings and observe the business developments.

I could have made a decision when i see the results in August but it was just one of the few rare moments when i decided to go punting to get a better return this year. 

Currently i am capping the exposure at 10% of the Portfolio

However, if the market fluctuations gets much more and start swinging the IGG Share Price to a larger downside amount before the profit announcement or if the H1 profit is much higher than 410 million but the share price remains depressed, then i would be keen to add more %.

Although that would mean by then I will have to rethink the allocation of other stocks based on the economic conditions then.

Time for some K-POP Picture Spam

And Finally for anyone interested in the current returns as of 11 June.