20240322-招银国际-友谊时光-06820.HK-Eyes_on_mini-game_potential_and_cost_control_6页_937kb

Summary of FriendTimes (6820HK) Analysis

Key Financials and Results

FriendTimes reported FY23 results with revenue declining 31% year-on-year, missing analyst estimates by 2%, while adjusted net loss was RMB 133 mn, aligning with expectations. Overall performance is viewed as well-priced in the market, with focus shifting to FY24. Earnings forecast trimmed by 18-28% for FY24-25 due to Twist of Fate 2 (ToF2) performance.

New Game and Strategic Initiatives

ToF2 (浮生忆玲珑) launched in Q1 2024, ranking top 50-70 in iOs grossing for Q1 QTD. Expected stable grossing ahead, with key focuses on: (1) Android expansion, (2) overseas releases, and (3) cost control through S&M efficiency improvements. Personnel adjustments and prudent R&D project development prioritized in FY24 to enhance cost discipline. Mini-games, such as Promise of Lingyun, performed well (monthly grossing > RMB 5 mn), and the company plans to convert more titles into mini-games to unlock revenue potential. Upcoming titles include InkSword: Jianghu (expected Q3 2024 release) and Reign of Destiny (overseas test and release scheduled for H2 2024/HY25).

Recommendations and Valuation

Maintain BUY recommendation based on potential from new games and mini-games, but with lower target price of HK$18 (down from HK$20). Earnings adjustments factored in are due to ToF2's impact. Current P/E ratio is 11.1x (FY24E), with projected revenue growth of 39.6% for FY24, supported by steady gross margins around 68%.

Analyst Certification and Risks

Analyst certification confirms views are personal and no conflicts exist. Report highlights risks inherent in securities trading, including uncertain returns and dependencies on market factors. No liability assumed for reliance on information.