Company overview: starting from chess and cards, multiple layout of games and competitions. Founded in March 1988, Lianzhong is the earliest online board game developer and operator in China. In April 2016, Lianzhong released a new corporate logo, proposing to build an intellectual sports ecosystem focusing on games, e-sports, Chinese intellectual sports, global competitive entertainment and sports consumption. In 2016, the company's operating income was 871 million yuan, up 13.2 percent from the same period last year, and its net profit was 149 million yuan, up 30 percent from the same period last year. Among them, Lianzhong's non-game revenue grew rapidly, with non-game revenue of 108 million yuan in 2016, an increase of 45.3% over the same period last year.
Industry analysis: the game industry continues to prosper and competitive entertainment is in the ascendant. The domestic game market continues to grow rapidly. In 2016, the actual sales revenue of China's game market reached 165.57 billion yuan, an increase of 17.7 percent over the same period last year. Mobile games accounted for 49.5 percent, surpassing client games for the first time to become the largest segment. The size of China's board game market in 2016 was 5.86 billion yuan, an increase of 48.35 percent over the previous year. Regulators have issued a series of regulatory policies for board games, which help to purify the development environment of the online board game industry. The number of e-sports players in China was 120 million in 2015 and is expected to reach 280 million in 2018, and the number of users is expected to explode. With the development of e-sports industry, ticket revenue, broadcast copyright and advertising sponsorship are expected to be greatly improved, and the income structure and profit performance of the event organizers will also be gradually optimized.
Company analysis: multi-point blossom of entertainment sports, the construction of intellectual sports ecosystem. The company's main business covers games, sports and derivative industries, a total of three parts, the initial formation of the intellectual sports ecosystem. In terms of industry status, the company is the second most popular board game platform in China, offering more than 200 games, with MAU reaching 296 million people in 2016. Through investment and acquisition and signing cooperation agreements, the company has built a competitive system such as intellectual sports platform, global competitive entertainment platform, e-sports platform and so on. E-sports, led by the public, jointly established a joint venture "Alliance e-sports" with Internet Fish Internet Cafe, Sports window, Air Network, and Palm fun Technology. In terms of derivatives, we set up a joint venture with Sports window, which converges on the Internet to put forward more innovative ways to play in ticketing, fans and derivatives.
Risk factors. The risk of a decline in the growth rate of the game business; the promotion of competitive business is lower than expected; overseas expansion is lower than expected.
Profit forecast, valuation and investment rating. We estimate that the company's EPS for 2017-2019 will be 0.24 EPS 0.27 RMB 0.33; the current price is 3.18 Hong Kong dollars, corresponding to 2016-2018 PE is 12-10-9 times. Considering the layout of the company in the fields of games, competitive sports, sports consumption and so on, it is expected to form intellectual sports ecology. We give the company 15 times PE, corresponding to a market capitalization of 2.818 billion yuan, or HK $3.177 billion, in 2017, and a target price of HK $4.04. Cover for the first time, give the company a "buy" rating, and advise investors to pay active attention.
