Event
Zulong Entertainment was officially included in the MSCI China small share Index after the close on November 30, 2021.
Comment
The inclusion of the MSCI index is expected to obtain incremental capital inflows. The current round of MSCI China small cap index includes a total of 231 constituent stocks, excluding 235constituent stocks, including Zulong Entertainment, Huazhong car, Coolpad Group, etc., we believe that the MSCI Index as an important reference index for the allocation of global funds, Zulong Entertainment is included in the MSCI Index, which is expected to obtain the allocation of global passive and active funds, and access to more incremental capital inflows.
Focus on the company's game reserves, the launch of new games is expected to promote performance growth. The company's follow-up game reserves include Noah's Heart and Project C (Western Magic theme SLG), which are expected to be launched globally within 21 years, and 22-year global launch of women to the game "in the name of Shining" and Project B (a combination of shooting and MMO, adapted from a well-known film with a global box office of more than $1.5 billion), among which:
Heart of Noah: based on the illusory 4-engine technology to create an open world MMO, seamless spherical map is its biggest innovation; at the same time, the game breaks through the professional restrictions of traditional MMORPG and develops a more open and free play system. The game, which started its first closed test on July 20, is currently released by Tencent. A limited internal test was announced on November 24, and the game is expected to be launched by the end of 2021.
"in the name of shining": a female mobile game based on Unreal 4, which is expected to be launched in 2022. With reference to the experience of female players accumulated by the company in the past in "Love of the Sword" and "the Sky era", as well as the screen expression of the illusory engine, the game can present exquisite 3D characters and clothing, as well as tailoring clothes at will. Customized clothing is expected to help the project succeed.
Investment suggestion
The company continues to strengthen the spontaneous business layout, the follow-up game reserve is more sufficient, is expected to promote future performance growth. Due to the suspension of the release of game numbers and the intensification of competition in mobile games, it is expected that the industry competition will intensify in the future. We have downgraded the 2022max 2023 net return of 6% and 29% of 2023. It is estimated that the 202lash 2023 net profit will be RMB 0.25pm, corresponding to the EPS of RMB0.03 and 0.53max, maintaining the "Buy" rating.
Risk hint
Game launch is not as expected; illusory engine can not be used properly; game industry policy risk; accounts receivable risk; R & D cost fluctuation risk