Research Report

Author

李學滔先生(Terry Li)
分析師

碩士及學士皆畢業於嶺南大學,分別擁有國際銀行與金融碩士學位和工商管理學士學位。擅長從公司基本面及估值發掘投資機會,主要負責科技、媒體和電信、教育與金融行業研究。

Graduated from Lingnan University, with Master of Science in International Banking and Finance and Bachelor of Business Administration respectively. Investigate company fundamentals and valuation to explore investment opportunities in TMT, Education and Financial industry.


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Perfect World (002624.SZ) - Revenue growth will be boosted thanks to the fever on “Perfect World Mobile”

Monday, March 18, 2019 Views1085
Perfect World
Recommendation on  18 March 2019
Recommendation Accumulate
Price on Recommendation Date $33.890
Target Price $37.670

Investment Summary

Perfect World engaged in Film and TV series creation as well as Gaming development in China, together with strong game development and film production capabilities. Assuming a target P/E of 23x in 2019, we maintain a “Accumulate” rating and derive a target price of $37.67, 20.8% higher than previous TP, with a potential upside of 11.2%. (Closing price at 13 March 2019)

Annual result update

The Group has released its annual result briefing on 28 Feb. During the period, the revenue was RMB 8.04 billion, just up by 1.34% YoY, while the operating profit reached RMB 1.84 billion, increased by 15.9%. As for gaming segment, the performance of PC and mobile games remained stable, such as “Zhu Xian”, “Perfect World (Int`l)”, and “Zhu Xian mobile”. Besides, there are many new games coming up, for example “YunMeng Four Time Song”, “Meng Jian Ji Tian e Zuo”, New Laughing in the Wind” and “ReEvolve”. “YunMeng Four Time Song”, “Meng Jian Ji Tian e Zuo”, New Laughing in the Wind” are now having their internal testing. As for TV series segment, the Group has released TV series and web series, like “Blade Attacking”, “The Flame's Daughter”, “Suddenly This Summer”, “The Way We Were”, and “Perfect Youth”. In addition, there are series almost finished or finished, such as “青春鬥”, “不婚女王”, “鱷魚與牙籤鳥”, “霍元甲”, “義無反顧” and “半生緣”. As for film segment, the Group has released the web film “The Ferry Man” and “Shadow” directed by Zhang Yimou. Moreover, the strategical cooperation with Universal Pictures will continue.

Business update

“Perfect World Mobile”, the latest game of the Group, have been granted the gaming licence in the forth round and have been launched on 6 Mar. The publisher is Tencent Holdings (700.HK). It was created based on the classic PC game “Perfect World” and transfer into mobile version in order to arouse the reminiscence for gamers. “Perfect” recreated the features in the PC version, which are flying, aerial fighting and aerial mission. Moreover, the games has adopted a seamless map model from the PC version. It makes the game do not need any loading when shifting its map, very different from the games in the market now, leading to a smoother gaming experience. After the launch, the game was ranked the first in the free games, and beat “Arena of Valor” on 9 March and ranked the top in Top Grossing. As of 12 Mar, the cumulative downloads reached 3.2 million.

Valuation

Although the revenue growth was lower than expected due to the policies in the gaming industry, we believe the Group will regain its growth thanks to the more positive industry environment and its latest mobile game. Assuming a target P/E of 23x in 2019, we maintain a “Accumulate” rating and derive a target price of $37.67, 20.8% higher than previous TP, with a potential upside of 11.2%.

Risk

1. Lower-than-expected growth in Mobile gaming

2. Giant entering the film & drama production

3. Loss in production team

Financials

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This report is produced and is being distributed in Hong Kong by Phillip Securities Group with the Securities and Futures Commission (“SFC”) licence under Phillip Securities (HK) LTD and/ or Phillip Commodities (HK) LTD (“Phillip”). Information contained herein is based on sources that Phillip believed to be accurate. Phillip does not bear responsibility for any loss occasioned by reliance placed upon the contents hereof. The information is for informative purposes only and is not intended to or create/induce the creation of any binding legal relations. The information provided do not constitute investment advice, solicitation, purchase or sell any investment product(s). Investments are subject to investment risks including possible loss of the principal amount invested. You should refer to your Financial Advisor for investment advice based on your investment experience, financial situation, any of your particular needs and risk preference. For details of different product's risks, please visit the Risk Disclosures Statement on http://www.phillip.com.hk. Phillip (or employees) may have positions/ interests in relevant investment products. Phillip (or one of its affiliates) may from time to time provide services for, or solicit services or other business from, any company mentioned in this report. The above information is owned by Phillip and protected by copyright and intellectual property Laws. It may not be reproduced, distributed or published for any purpose without prior written consent from Phillip.
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