Education and gaming go hand in hand, and high dividend rates protect shareholders' rights and interests. The company currently has both education and gaming businesses, accounting for 55%/44% of revenue in 2022, respectively. In recent years, the epidemic has catalyzed a rise in demand for informatization in overseas education, and the education business is booming; the performance of the game business has been relatively steady over the years. The domestic epidemic in 2022 has repeatedly affected the willingness to pay for Big R, and revenue has declined slightly. Furthermore, the company actively gives back to shareholders through repurchases and dividend distribution. Since 2021, the company has maintained a high dividend rate and attached great importance to shareholder returns.
Education business: Pumi expands market coverage, and AI is expected to enhance product strength. The company provides online and offline integrated education solutions combining software and hardware. Among them, its subsidiary Promehuis is leading the global interactive tablet market (except China) and has been deeply involved in major overseas markets for more than 20 years. The channel advantage is remarkable, with a market share of 23.7% in 2022. At the same time, unique top-down 2G national projects continue to advance. The volume of individual projects is large and is expected to contribute to a large increase in performance. Furthermore, two major projects jointly built by the company and the Central Electronic Education Center in China have been successfully implemented and are continuing to be promoted. In the future, the company will continue to expand market coverage, launch AI-enabled tablet products and enter the middle and low end markets, and actively increase SaaS and software monetization revenue through outreach mergers and acquisitions and strategic cooperation. At present, the company has announced the spin-off listing of its overseas education business. It is expected to be completed before the end of the third quarter, which may better release its capital value.
Gaming business: “Magic Domain” IP introduces new games, enriches the pipeline or enhances the certainty of performance. Currently, the company has five major game IPs. Among them, “Magic Domain” is the core flagship IP, contributing more than 85% of game revenue in 2022; in March 2023, “Magic Domain 2” began public beta. In the future, new versions such as “Magic Domain Remastered” and the new PC “Magic Domain” will be launched one after another, which is expected to renew the IP again and lengthen the life cycle. The “Conquer” IP performed well overseas, and the successful promotion model of the Egyptian market is being replicated in more countries with the same player structure and huge growth potential. We believe that the company's game journey overseas continues to advance, the pipeline of subsequent games is rich, and the certainty of performance is strong.
Profit prediction and investment advice: We used the SOTP comparable company valuation method. In 2023, we gave 1.2 times PS to the education business and 6.5 times PE to the gaming business. The target market value for 2023 was HK$11.099 billion, and the corresponding target price was HK$20.52. The first coverage was given, and a “buy” rating was given.
Risk warning: The number of new “Magic Domain” IP games fell short of expectations, competition in the overseas educational interactive tablet market is becoming increasingly fierce, regulatory risks in the game industry, etc.