20210827-招银国际-雷蛇-01337.HK-Core_business_continued_its_strong_growth_in_1H21_7页_1mb

Razer Inc. (1337 HK) | Equity Research Summary

Core Business Performance

Razer Inc. reported record-high revenue of US$752 million in 1H21, representing a 68% YoY growth, with GPM improved to 27.1% (vs. 22.3% in FY20). The growth was driven by strong demand in the hardware business, particularly in peripherals (104% YoY), and ongoing expansion in the Services segment.

Looking ahead, Razer is expected to continue its growth momentum, with 2H21 likely to maintain strong performance due to the back-to-school and holiday season. However, seasonality will be less pronounced as the company already achieved a strong 1H21.

Strategic Shift

Razer has decided to suspend its toC e-wallet business (Razer Pay) due to its low contribution to revenue and high capital requirements. Instead, the company is focusing on its B2B payment gateway business and has announced a new investment plan of ~US$30 million starting from 2H21 to enhance its payment gateway infrastructure and merchant base.

This shift may pressure NPM in the short term but is expected to boost topline growth in the long term, especially considering the ongoing impact of the pandemic and the increasing online shopping activities in Southeast Asia (SEA).

Financial Overview

Valuation and Target Price

• Maintain BUY rating with a new target price (TP) of HK$3.00, reflecting a 62% upside from the current price of HK$1.85.
• The TP is based on a lower valuation of 21x/9x FY22E P/E for peripherals and system segments, and 1x FY22E P/S for services business, due to recent peers' valuation compression.
• 12M forward P/E chart and P/B band show Razer's valuation in comparison with peers.

Earnings Revisions

Key Assumptions and Forecasts

Shareholding and Performance

• Shareholding Structure:

  • Chen Family Hivemind Holdings: 32.18%
  • Voyager Equity: 15.22%
  • Lim Teck Lee Land Pte: 3.75%

• Share Performance:

  • 1-month: -5.5%
  • 3-month: -27.0%
  • 6-month: -30.8%

• Market Cap: HK$16,317 million

• 52-week High/Low: HK$3.36 / HK$1.42

Risk Factors

• Macro economic uncertainty
• Quicker-than-expected control of the virus in SEA
• Intense competition in the hardware business

Valuation Methodology

The SOTP (Sum-of-the-Parts) method is used to evaluate Razer. The valuation is based on:

• Peripherals: 21x FY22E P/E
• Systems: 9x FY22E P/E
• Services: 1x FY22E P/S

Total estimated valuation: HK$26,489 million

Analyst Certification

The research analyst certifies that the views expressed in this report reflect personal opinions and that no part of the analyst's compensation is directly or indirectly related to the specific views in this report. Additionally, the analyst confirms no trading activity in the stock covered within 30 days prior to the report and will not engage in such activity within 3 business days after the report is issued.