Market Report Summary - 4 June 2015
Core Content
This market report provides an overview of the TMT sector performance and highlights key developments related to Linekong Interactive (8267.HK) and other major companies in the sector.
Linekong Interactive: Key Takeaways
- Company Overview: Linekong Interactive is transitioning from an online game developer to a mobile game developer and publisher.
- Performance in Q1 2015: The company experienced a soft quarter with revenue of Rmb113.4 mn, a 33.1% YoY decrease, due to strategic adjustments in game release timing and the natural lifecycle of existing games.
- Revenue Breakdown: Mobile games contributed 88.3% of total revenue in Q1 2015, up from 83.6% in Q1 2014. Licensed games saw a significant increase in contribution, reaching 38.7% in Q1 2015 from 14.2% in Q1 2014.
- Pipeline and Growth Expectations: Management anticipates a rebound in 2H15 revenue with a strong game pipeline. The game "One Hundred Thousand Bad Jokes" achieved over 100 million daily active users (DAU) after its launch on March 18, 2015.
- Strategic Roadmap:
- Ecological Strategy: Focus on securing popular IPs through cooperation and investment. A "Pan-entertainment" strategy aims for full coverage of games with popular IPs.
- Platform-Based Business: The company's own game distribution platform, 8864.com, had 87.5 million registered users as of March 31, 2015. It plans to expand mobile games to home entertainment platforms such as PS4 and mainstream TV platforms.
- International Expansion: The company aims to boost overseas publishing business, with a 13% contribution in Q1 2015. With new subsidiaries in Hong Kong and Korea, the contribution is expected to reach 20% in 2015.
- Valuation: Linekong Interactive is trading at 32.21X FY15F PE with an adjusted EPS of Rmb0.38. The company is expected to expand its influence in the iPhone APP Store and improve its game rankings in the Top Charts.
TMT Sector Highlights
- In-Flight Internet: China Eastern Airlines has received approval from the MIIT to operate in-flight internet, marking the first wide-scale in-flight wifi approval for a Chinese carrier and potentially opening the door for others.
- Kunlun Tech and Supercell: Kunlun Tech is rumored to acquire Supercell, a Finnish mobile game developer, which has led to increased investment from Softbank International Venture.
- Internet Usage in China: Chinese consumers are expected to spend an average of 202 minutes per day on the internet by 2017, a 42.3% increase from 2014.
- Regulatory Actions: Beijing authorities have told Didi Kuaidi that its private car services are illegal.
- Meizu Sales: Entry-level phones may help Meizu boost sales.
Stock Market Performance
| Market |
Price 3 Jun |
Abs Chg |
% Chg |
| Hang Seng Index |
27,657 |
191 |
0.7 |
| H-Share Index |
14,115 |
(87) |
(0.6) |
| CSI 300 Index |
5,145 |
(18) |
(0.3) |
| Sh Composite Index |
17,539 |
53 |
0.3 |
| Sz Composite Index |
3,041 |
11 |
0.4 |
| Nikkei 225 |
20,474 |
(70) |
(0.3) |
| Korea KOSPI |
2,063 |
(15) |
(0.7) |
| Taiwan TWSE |
9,557 |
(58) |
(0.6) |
| India Sensex 30 |
26,837 |
(351) |
(1.3) |
| DJIA |
18,076 |
64 |
0.4 |
| S&P500 |
2,114 |
4 |
0.2 |
| NASDAQ |
5,099 |
23 |
0.4 |
| UK FTSE 100 |
6,950 |
22 |
0.3 |
| Germany DAX |
11,420 |
91 |
0.8 |
| France CAC40 |
5,034 |
30 |
0.6 |
Key Indicators
| Indicator |
Price 3 Jun |
Abs Chg |
Chg% |
| WTI oil $/bl |
59.6 |
(1.6) |
(2.6) |
| Gold $/troy oz |
1,182.8 |
(10.8) |
(0.9) |
| Cu fut. $/metric ton |
6,040.0 |
0.0 |
0.0 |
| Al fut. $/metric ton |
1,740.5 |
0.0 |
0.0 |
| Reuters/Jefferies CRB fut. |
223.6 |
(2.2) |
(1.0) |
| Baltic Dry Index |
598.0 |
7.0 |
1.2 |
| UST yield 3m % |
0.01 |
0.01 |
- |
| UST yield 10y % |
2.36 |
0.102 |
- |
| HIBOR 3m % |
0.39 |
0.001 |
- |
| USD LIBOR 3m % |
0.28 |
0.000 |
- |
HK Listco ADR US (Top Ten)
| Company |
ADR cls HK$ eqv. |
HK cls HK$ |
Chg % |
| Petrochina |
9.14 |
9.13 |
0.13 |
| China Mobile |
103.23 |
104.60 |
(1.31) |
| HSBC |
74.28 |
73.90 |
0.51 |
| China Life |
36.78 |
36.45 |
0.91 |
| Sinopec Corp |
6.78 |
6.77 |
0.19 |
| Hutchison Whampo |
129.80 |
115.00 |
12.87 |
| Cheung Kong |
190.43 |
118.00 |
61.38 |
| China Telecom |
5.24 |
5.21 |
0.66 |
| Sun Hung Kai |
134.56 |
134.00 |
0.42 |
| China Unicom |
13.38 |
13.26 |
0.93 |
Company Valuation and Financials
| Metric |
2013A |
2014A |
2015E |
2016E |
| Turnover (Rmb mn) |
515.0 |
678.7 |
1,090.5 |
1,363.0 |
| Net Profit excl. SBC (Rmb mn) |
-400.9 |
-154.6 |
140.5 |
293.5 |
| EPS (Rmb) |
-- |
-2.56 |
0.38 |
0.80 |
| EV/EBITDA (x) |
-- |
155.70 |
29.94 |
13.37 |
| P/E (x) |
-- |
-- |
32.21 |
17.93 |
| P/B (x) |
-- |
2.88 |
3.93 |
3.07 |
Income Statement (Rmb mn)
| Item |
FY 2012 |
FY 2013 |
FY 2014 |
FY 2015 Est |
FY 2016 Est |
| Turnover |
265.6 |
515.0 |
678.7 |
1,090.5 |
1,363.0 |
| Cost of Revenue |
133.1 |
244.4 |
347.4 |
- |
- |
| Gross Profit |
132.6 |
270.6 |
331.3 |
492.9 |
613.4 |
| Operating Expenses |
134.1 |
212.8 |
334.9 |
- |
- |
| Operating Profit |
5.1 |
62.9 |
0.4 |
66.0 |
176.0 |
| Pretax Income |
-122.2 |
-381.9 |
-151.9 |
132.5 |
324.0 |
| Net Income |
-129.5 |
-400.9 |
-154.6 |
140.5 |
293.5 |
Balance Sheet (Rmb mn)
| Item |
FY 2012 |
FY 2013 |
FY 2014 |
| Cash & Near Cash Items |
47.2 |
111.8 |
1,086.5 |
| Total Current Assets |
93.1 |
226.9 |
1,201.3 |
| Total Assets |
120.9 |
246.9 |
1,260.2 |
Cash Flow (Rmb mn)
| Item |
FY 2012 |
FY 2013 |
FY 2014 |
| Cash From Operating Activities |
27.1 |
108.0 |
103.6 |
| Cash From Investing Activities |
-14.1 |
-37.2 |
17.3 |
| Cash From Financing Activities |
-1.8 |
-6.2 |
853.8 |
| Net Changes in Cash |
11.2 |
64.6 |
974.8 |
Internet Company Comparisons
| Company |
Market Cap (USD, mn) |
EV Last Price (USD) |
Price Performance (%) |
Adjusted EPS (USD) |
PE (x) |
| Baidu |
71,326 |
66,575 |
203.4 |
3.20 |
37.92 |
| Sohu |
2,582 |
2,383 |
66.9 |
0.81 |
33.64 |
| Sina |
2,953 |
1,981 |
50.6 |
1.46 |
18.68 |
| Bitauto |
3,617 |
3,050 |
60.2 |
0.81 |
20.08 |
| Autohome |
5,072 |
4,897 |
46.2 |
1.00 |
31.45 |
| Qihoo 360 |
6,848 |
6,965 |
54.4 |
2.56 |
47.96 |
| Youku |
18,874 |
15,267 |
144.4 |
5.53 |
34.92 |
| Tencent |
1,482,188 |
1,458,717 |
158.1 |
3.20 |
37.39 |
| NetDragon |
17,970 |
14,272 |
36.4 |
0.47 |
50.26 |
| Forgame |
3,157 |
1,853 |
24.8 |
0.81 |
60.06 |
| Igg |
8,809 |
7,409 |
6.3 |
0.34 |
15.12 |
| Boyaa |
6,061 |
4,293 |
7.9 |
0.47 |
13.00 |
| Oourgame |
6,641 |
5,711 |
8.5 |
0.18 |
12.97 |
| Cogobuy |
20,414 |
20,663 |
15.1 |
0.21 |
20.20 |
| PC Group |
4,462 |
3,969 |
4.0 |
0.25 |
14.49 |
| Tian Ge |
8,624 |
7,075 |
6.9 |
0.14 |
22.44 |
| Alibaba Pictures |
76,147 |
69,537 |
3.6 |
-0.02 |
21.09 |
| New Media |
5,089 |
4,996 |
5.9 |
0.01 |
21.09 |
Summary of Key Points
- Linekong Interactive is expected to see a rebound in 2H15 revenues due to a strong game pipeline and strategic initiatives.
- The company is focused on building an ecological system, enhancing platform-based business, and expanding into overseas markets.
- The TMT sector highlights include regulatory changes, mergers, and trends in internet usage and mobile gaming.
- The stock market showed mixed performance, with some indices experiencing positive growth while others saw declines.
- Key indicators like oil prices, gold, and interest rates were also mentioned, with some showing declines and others stable or slightly increasing.
