20180810-中国银河国际证券-IGG-00799.HK-Key_takeaways_of_1H_2018_results_presentation._Well-diversified_geographical_mix_and_new_games_to_deliver_long-term_growth_3页_669kb

IGG Inc. 1H 2018 Results Summary

Core Content Overview

IGG Inc. (799.HK) is a Singapore-based online game developer and operator that offers browser games, client-based games, and mobile games in Asia, North America, and Europe. The company has a strong presence with over 550 million registered users across more than 200 countries and regions, and its key titles include Lords Mobile, Castle Clash, and Claw of Lords II. The company was listed on the Hong Kong Stock Exchange in 2013 and moved to the Main Board in 2015.

Key Financial Performance (1H 2018)

• Revenue: US$389 million, up 42% YoY from US$273.5 million in 1H 2017.
• Net Profit: US$98.4 million, up 29% YoY from US$76.2 million in 1H 2017.
• Gross Margin: 70%, up from 68% in 1H 2017, exceeding the original expectation of 68% for full-year 2018.
• Effective Tax Rate: Increased from 16.5% to 20.6%, which impacted net profit growth.
• Dividend Yield: 3.72% for 2018, with an interim dividend of HK$0.177 per share (30% payout ratio).

Game Performance Highlights

• Lords Mobile:
  • Accounted for 80% of IGG's turnover in 1H 2018.
  • Achieved average monthly gross billings of US$56 million in 1H 2018, with a slight drop to below US$54 million in July 2018 due to the World Cup impact.
  • MAUs increased from 12 million to 14 million in the period, with 130 million registered users.
  • Expected to benefit from China Android growth in H2 2018.
• Castle Clash:
  • Maintained steady performance with monthly gross billings over US$10 million.
  • MAUs decreased slightly to 5 million from 6.2 million in 2017.
• Claw of Lords II:
  • MAUs at 540,000, with 12 language versions.

Strategic Developments

• IGG plans to launch 4–5 new games (e.g., Galaxy, Reborn, CC II) between September and December 2018, with one game per month.
• The company aims to increase daily net users of Lords Mobile from 280,000 to 350,000 in the coming months.
• IGG is focusing on location-based services (LBS) and augmented reality (AR) to expand into new segments.
• No third-party channels are planned for user acquisition, as the internal marketing team is capable of achieving growth targets.
• IGG will upgrade Lords Mobile to improve user engagement and gross billings.

Growth Outlook

• The company's diversified geographical mix reduces exposure to the slowdown in the Chinese online game market.
• Management expects a pick-up in gross billings in H2 2018, with the potential for Lords Mobile to reach US$57.5 million in gross billings for 2018 and US$62 million in 2019.
• IGG is seeking M&A opportunities to drive synergies and business breakthroughs.

Valuation and Market Position

• IGG's stock is currently trading at 8.3x 2018 PER and 7.5x 2019 PER, offering a 3.7% dividend yield.
• The company's better geographical mix and higher-than-average growth compared to peers may support a higher valuation.
• Analysts believe that new game launches and news flow on China Android could boost share price performance after a correction.
• The PER band and key assumptions for future performance are outlined in the provided figures.

Main Points and Key Information

• IGG's strong performance in 1H 2018 aligns with expectations, driven by its well-diversified user base and key game titles.
• Lords Mobile remains the company's primary revenue driver, with a large user base and growth potential.
• Gross billing fluctuations were partly due to external factors like the World Cup, but management expects recovery.
• New game launches are expected to support future growth, with a focus on LBS and AR technologies.
• Geographical diversification reduces reliance on any single market, particularly China.
• IGG is revising its growth forecasts slightly downward but remains optimistic about future performance.
• The company is actively pursuing M&A and internal marketing to sustain growth.

Catalysts for Future Growth

• 2H 2018 results announcement
• New game launches
• News flow on China Android

Disclaimer and Legal Information

• This report is issued by Galaxy International Securities, a subsidiary of China Galaxy International Financial Holdings Limited.
• The report does not constitute an offer or solicitation to buy or sell securities.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• The views expressed are those of the analyst and may differ from those of the company or its subsidiaries.

Analyst Certification

• The analyst certifies that the views in this report accurately reflect personal opinions.
• No compensation was received directly or indirectly related to the views expressed in this report.

Equity Ratings Explanation

• BUY: Share price is expected to increase by more than 20% within 12 months.
• SELL: Share price is expected to decrease by more than 20% within 12 months.
• HOLD: No clear catalyst, and downgraded from BUY pending clearer signals.