20211124-招银国际-雷蛇-01337.HK-Update_on_4Q21E_FY22E_forecastsUpdate_on_4Q21E_FY22E_forecasts_9页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

Razer Inc. (1337 HK) is a key player in the gaming peripheral market, which is expected to continue growing post-pandemic due to changing lifestyles and rising demand for streaming and gaming. The company is projected to outperform its peers with higher sales growth, driven by its strong market position and expansion in product categories and sales channels.

Main Points

• Market Outlook: The global gaming peripheral market grew 45% YoY in 2020, and is expected to maintain growth due to increased interest in gaming and streaming.
• Razer's Performance: Razer's peripheral sales grew 73.8% YoY in FY20 and 104.1% YoY in 1H21, significantly outperforming Logitech (36.0% / 43.7%), Corsair (55.2% / 45.5%), and Turtle Beach (53.5% / 49.6%).
• Earnings Forecasts:
  • Revenue is expected to grow at 23.5% YoY in FY22E and 15.8% YoY in FY23E.
  • Gross margin is projected to rise from 25.2% in FY21E to 28.0% in FY23E.
  • Net profit is expected to increase from $50 million in FY21E to $139 million in FY23E.
• Valuation:
  • The target price is raised to HK$3.47 (24% upside), based on 1.5x FY23E EV/Sales.
  • The implied EV/EBITDA for FY23E is 18.0x, which the analysts believe better reflects Razer's growth potential compared to its peers.
• Risks:
  • Uncertainty in macroeconomic growth.
  • Prolonged global supply chain constraints.
  • Intensified competition in the hardware sector.
  • Potential cooling of discussions regarding privatization.

Key Financial Data

Shareholding Structure

• Chen Family Hivemind Holdings: 32.4%
• Voyager Equity: 15.33%
• Lim Teck Lee Land Pte: 3.77%

Share Performance

• 1-Month: 58.2% absolute, 65.6% relative
• 3-Months: 59.1% absolute, 58.4% relative
• 6-Months: 9.8% absolute, 25.2% relative

Recent Transactions and Privatization Rumors

• Razer is in preliminary discussions with financial investors for a potential management buyout backed by PE funds.
• The company has clarified that there is no certainty the discussions will lead to a transaction.
• Historical data shows that privatization transactions in the past 2 years had an average 30-day premium of 38.2% and 90-day premium of 59.6%.

Earnings Revisions

• The analysts trimmed FY21E margins due to supply chain and logistics issues.
• They also adjusted FY22E and FY23E margins based on Razer's reinvestment plan to boost sales and strengthen market positions.

Valuation Comparison with Peers

Financial Summary

• Cash Flow:
  • Net cash from operating activities is expected to increase from $-38 million in FY19A to $245 million in FY23E.
• Balance Sheet:
  • Total assets are projected to grow from $995 million in FY19A to $1,760 million in FY23E.
  • Total liabilities are expected to rise from $420 million in FY19A to $883 million in FY23E.
  • Total equity is forecasted to increase from $575 million in FY19A to $877 million in FY23E.

Key Ratios

• Revenue by Segment:
  • Peripherals: $445 million in FY19A to $1,556 million in FY23E.
  • Systems: $269 million in FY19A to $452 million in FY23E.
  • Software/Services/Fintech: $77 million in FY19A to $247 million in FY23E.
• Growth:
  • Revenue growth: 15.2% in FY19A to 15.8% in FY23E.
  • Net profit growth: -13.2% in FY19A to 38.8% in FY23E.
• Profit & Loss Ratio:
  • Gross margin: 20.5% in FY19A to 28.0% in FY23E.
  • Net profit margin: -10.3% in FY19A to 6.1% in FY23E.

Conclusion

CMB International Securities maintains a BUY rating on Razer with a new target price of HK$3.47, reflecting a 24% upside from the current price of HK$2.79. The analysts believe Razer is well-positioned for continued growth and have adjusted their valuation methodology to better reflect the company's sales potential. Despite potential risks, the company's strong performance and market leadership remain a positive outlook.