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Summary of Boyaa Interactive (434 HK)

Core Content

Boyaa Interactive (434 HK) is a Chinese online game company that has established a strong presence in both domestic and international markets. The company primarily develops and operates online card and board games, such as "Texas Hold'em Poker" and "Fighting the Lord." Its business model relies on third-party distribution platforms and payment channels, with a focus on game localization to enhance user experience and expand its global reach.

Main Points

• Global Market Positioning: Boyaa's non-Simplified-Chinese game revenue was Rmb519M in FY14, accounting for 55% of total revenue, indicating a strong international presence.
• Mobile Game Growth: Boyaa was an early entrant in the mobile game market, with FY14 mobile game revenue reaching Rmb536M, a 95% increase yoy. FY11-14 CAGR was 243%, showing significant potential.
• Segment Revenue Share: Mobile game revenue share of total revenue surged from 1% in FY10 to 57% in FY14.
• Game Portfolio: As of March 2015, Boyaa operated 28 games, with 21 language versions. Key games include "Texas Hold'em Poker" and "Fighting the Lord."
• Financial Performance: Boyaa's revenue grew from Rmb681M in FY13 to Rmb945M in FY14, and is expected to reach Rmb1,103M in FY15. EBITDA and net profit also showed strong growth.
• Valuation: The target price is set at HKD8.59, with a potential upside of 31%. The valuation is based on 17.5x FY15E PE and 3.09x FY15E PB.
• Risk Factors: Increasing competition, high bargaining power of distributors, and legal risks related to card and board games and gambling are noted.

Key Financials (Rmb mn)

Basic Data (Updated June 23, 2015)

• Share Price: HK$6.58
• Market Cap.: HK$50.2B
• Free Float: 59.5%
• Shares in Issue: 763M
• 52 Weeks High/Low: HK$5.05 - HK$10.86
• 3 Months Average Daily Turnover: HK$69.30M
• Major Shareholder: Mr. Zhang Wei (39.13%)

Business Prospects

• International Expansion: Boyaa's business is not limited to the Chinese market, with a diversified revenue stream from multiple regions.
• Mobile Game Strategy: The company has aggressively expanded into the mobile game market, leveraging its early mover advantage.
• User Growth: Monthly active mobile game users increased from 12.22M in 1Q13 to 21.12M in 1Q15, with paying users rising from 0.36M to 2.14M.
• Paying Ratio: The paying ratio increased from 3.0% in 1Q13 to 10.1% in 1Q15, indicating improved monetization.
• ARPU Decline: ARPU declined in 1Q15, contributing to a slight revenue drop, but the company's user base and brand recognition remain strong.

Financial Analysis

• Profitability Trends: Gross margin decreased to 60.1% in FY14 due to rising channel costs, which accounted for 64% of COGS.
• Cash Position: Boyaa has a substantial cash reserve, which provides flexibility for future investments.
• Dividend Policy: The company has a credible dividend policy, with a consistent payout ratio.

Valuation and Rating

• Initial Coverage: The company is given an "Accumulate" rating with a target price of HKD8.59.
• Valuation Metrics: The target price is based on 17.5x FY15E PE and 3.09x FY15E PB.
• Peer Comparison: Boyaa's financial performance is compared with other HK online game peers, highlighting its growth potential and market position.

Risk Factors

• Intense Competition: The low entry barrier in the card and board game market may lead to increased competition.
• Channel Bargaining Power: Distributors and platform operators have significant influence over the company's revenue.
• Legal Risks: The company faces potential legal challenges due to the nature of its games and their similarity to gambling.
• Market Saturation: The risk of competition from other entertainment forms is also considered.

Conclusion

Boyaa Interactive has a solid foundation in the online card and board game market, with a strong international presence and a growing mobile game segment. Despite some financial challenges, the company's strategic focus on game localization and its established user base and brand recognition support its long-term growth prospects.