20210726-招银国际-中手游-00302.HK-Strong_pipeline___solid_1H21E_ahead_5页_914kb

CMB International Securities | Equity Research | Company Update Summary

Core Content

CMB International Securities has issued an equity research update on CMGE Technology (302 HK), highlighting its strong performance and future growth potential. The report suggests maintaining a BUY rating, with an updated target price of HK$6.2, up from HK$4.4, implying a potential return of +25.8% from the current price of HK$4.93.

The company is expected to deliver solid results in 1H21E, with revenue growth of +40% YoY and adjusted net profit growth of +18% YoY. This is attributed to the strong performance of The Voyage (航海王热血航线) and the anticipated success of two new titles launching in August 2021: Dynasty Warriors (真·三国无双霸) and New Sword and Fairy (仙剑奇侠传:挥剑问情). These new titles, along with ongoing promotions via Toutiao, are expected to further boost the company's performance.

The report emphasizes CMGE's robust pipeline of over 15 new titles in the second half of 2021, including Rakshasa Street (镇魂街:天生为王) and The King of Fighters (全明星激斗), which are backed by Toutiao's guarantee of annual grossing of RMB600mn. The company also plans to continue its IP-driven strategy in 2022, with titles like New Dragon Ball and Swallowed Star: Dawn expected to be launched.

Main Points

• 1H21E Performance: CMGE is projected to report RMB240mn in revenue and RMB400mn in adjusted net profit, with topline growth of +40% and bottomline growth of +18% YoY.
• Key Drivers: Strong performance from existing titles, such as The Voyage, and new titles like Soul Land (斗罗大陆) and The New Legend of The Condor Heroes (新射雕), which are expected to contribute significantly to revenue.
• New Titles in 2H21E: Two major titles launching in August 2021, including Dynasty Warriors (cooperating with Tencent) and New Sword and Fairy (cooperating with Toutiao), are anticipated to boost 3Q21E grossing.
• Future Growth: The company's long-term growth is supported by its valuable IP reserve and diverse pipeline, with revenue and profit growth expected to continue across FY21E to FY23E.
• Earnings Forecast: CMBIS has raised its earnings forecast by 5% / 8% / 6% for FY21E to FY23E, respectively.
• Valuation: The updated target price of HK$6.2 reflects a 12x FY21E P/E, which is below the industry average of 15x.
• Financial Highlights:
  • Revenue is expected to grow from RMB3,036mn in FY19A to RMB6,970mn in FY23E.
  • Adjusted net profit is projected to increase from RMB611mn in FY19A to RMB1,319mn in FY23E.
  • Operating profit is expected to rise from RMB255mn in FY19A to RMB1,425mn in FY23E.
• Margin Trends: While 1H21E margins may be slightly diluted due to increased S&M and R&D spending, the full-year earnings are expected to remain stable.
• Share Performance: The stock has shown strong performance over the past 12 months, with 45.4% absolute return and 56.7% relative return.

Key Information

• Target Price: HK$6.2 (up from HK$4.4)
• Earnings Forecast Raised: 5% / 8% / 6% for FY21E / FY22E / FY23E
• Main Titles Launching in 2021:
  • August 2021: Dynasty Warriors (with Tencent), New Sword and Fairy (with Toutiao)
  • Q4 2021: Rakshasa Street (with Toutiao guarantee), The King of Fighters
• IP-Driven Strategy: CMGE continues to prioritize IP-driven growth, with titles like New Dragon Ball and Swallowed Star: Dawn planned for 2022.
• Key Ratios:
  • Gross Margin: 34.4% in 1H21E, expected to remain stable
  • Operating Margin: 20.4% in 1H21E, with growth expected
  • Adj. Net Margin: 19.3% in 1H21E, slightly declining
• Cash Flow: CMGE is expected to maintain positive operating cash flow with increased cash reserves over the forecast period.
• Shareholding Structure:
  • Fairview Ridge Investment: 25.0%
  • Pegasus Network: 10.6%
  • Hotel Zhike: 7.2%
• Market Cap: HK$13,646mn
• Stock Performance:
  • 1-month: +28.7%
  • 3-months: +48.9%
  • 6-months: +45.4%

Conclusion

CMGE Technology is viewed positively by CMB International Securities due to its strong game pipeline, collaborations with major platforms like Tencent and Toutiao, and solid financial performance. The BUY rating is maintained, reflecting confidence in its long-term growth prospects and potential for outperformance in the internet sector.