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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) - Remarkable performance in mobile gaming business

Friday, August 16, 2019 Views3727
Perfect World
Recommendation on  16 August 2019
Recommendation Buy
Price on Recommendation Date $26.270
Target Price $34.370

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 derived a TP of $34.37, 0.3% higher than previous TP. We maintain a “Buy” rating, with a potential upside of 30.8%. (Closing price at 14 Aug 2019)

Interim result update

The revenue (excluding the cinema business) grew by 12.44% YoY, reaching RMB 3,656 mn. The net profit attributable to the owners was RMB 1,020 mn, up by 30.5%, while the net net profit attributable to the owners excluding the non-recurring gains and loss was RMB 973 mn, rose by 37.67%. The operating cash flow was RMB 167 mn. The gross profit margin was up from 59.6% in 18H1 to 68.6% in 19H1.

Business update

Gaming

The gaming revenue reached RMB 2,878 mn, up by 8.06% YoY. In terms of PC gaming, the performance of “Perfect World”, “Zhu Xian”, “DOTA2” and “CS:GO” all remained persistent. The Group are developing a new game, called “Xin Zhu Xian Shi Jie” based on the IP of “Zhu Xian”. In terms of Mobile gaming, the revenue boosted significantly by 39.4%, thanks to the strong performance of “Perfect World Mobile” launched in this March. It ranked the first in the IOS billboard for about 20 days. The “Legend of Condor Hero Mobile” has also launched on July along with a top ranking in IOS. The Group are still developing games, such as “Wo De Qi Yuan”, “Meng Huan Xin Zhu Xian”, “Xin Shen Mo Da Lu” and etc, which will fuel the growth in mobile gaming in the next few years.

Films & dramas

The revenue from films & dramas dropped by 22.4% to RMB 779 mn, due mainly to the sales of cinema business. In terms of dramas, the Group has launched “I Will Never Let You Go”, “Qing Chun Dou”, “In Youth” and etc. “I Will Never Let You Go” went into the top 3 in weekly drama of Zhejiang Television, while “In Youth” also ranked the top based on the CSM55 ratings. In terms of films, the Group planned to maintain its strategic cooperation with Universal Pictures on film production.

Valuation

As the revenue growth in 19H1 of PC and console gaming was lower than expected, we lower the revenue in 2019F by 8.4% to 6.4%. However, we saw a significant improvement in GPM and a good cost control in both selling and administrative expenses. As a result, we only lower the net profit growth by 1.3% to 14.3%. Assuming a target P/E of 23x in 2019, we derived a TP of $34.37, 0.3% higher than previous TP due to the previous share buyback. We maintain a “Buy” rating, with a potential upside of 30.8%.

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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