2016 Annual Results Summary: Performance fell short of expectations, revenue increased 13.2% year over year
Revenue for the full year of 2016 was 870 million yuan, an increase of 13.2% over the previous year. The increase was mainly due to PC games growing 11.7% to 390 million yuan, and the increase in revenue from game contests and events organized through the acquisition of Peerless Group. The adjusted net profit was 182 million yuan, an increase of 13.8% over the previous year. Gross margin fell 7 percentage points to 53% year over year, mainly due to an increase in the share of mobile game revenue, while mobile gross margin was higher than that of PC.
Continuing to strengthen the PlayWPT gaming portfolio, MAU is still climbing
Driven by the WPT Tour and the merger of WPT's Texas Hold'em games, the company's Texas Hold'em revenue increased 35.6% to $286 million in 2016. Currently, all versions of the new PlayWPT have been completed in the North American market, and will be advertised in the next WPT season, which is expected to have a strong stimulating effect on MAU. Furthermore, according to the company management's disclosure during the performance conference, a new tournament will be launched under PlayWPT in the second half of this year. The tournament will be directly linked to Fox TV, forming an online and offline link. WPT did not have its own R&D platform before, and its traffic was underutilized. In 2016, WPT signed a historic five-year long-term TV program contract with Fox and received more TV time. At the same time, WPT has achieved good results in all offline games, and the number of contestants and prize amounts have repeatedly reached new highs.
The chess and card competition platform was officially launched, and the sportization of casual chess and cards has entered a new era
Currently, the four events of competition, 2-on-1, Whipping the Egg, Run Fast, and Shikoku Naval Chess, have been approved by the General Administration of Sports, and a number of influential companies in the industry are participating in this event. Currently, the 2-on-1 competition has entered the qualifying stage, and will enter the national competition on September 23. The launch of a chess and card competition platform will further enhance the company's influence in the chess field.
The global layout of league e-sports has been initially formed, and it is expected that IP value will be monetized
Alliance eSports entered the European and American markets in 2016 by investing in the US Esports Arena company and establishing the European branch of ELC Gaming. The Hearthstone game that was produced received the highest ratings in Blizzard Hearthstone's history. The company makes full use of its outstanding offline tournament operation capabilities and resources to host various e-sports events and achieve profits through sponsorship fees and authorized broadcasts. We think it took the lead in entering the eSports 2.0 era at the right point in time.
Maintain the “buy” rating and adjust the target price to HK$4.10
Based on absolute valuation, the company still has 28% room to rise and maintains a “buy” rating. The target price corresponds to 16x 2017 PE. Considering that the company is in a new business development period, the valuation is reasonable.
Risk warning: Performance falls short of expectations, and promotion of e-sports alliances falls short of expectations.
