Key points of investment
Incident: Proposed acquisition of 100% of Palmum Gaming's shares
Hongbo Co., Ltd. announced on May 3, 2017, that the company plans to acquire 100% of the shares of Shenzhen Shishin Game Technology Co., Ltd. held by Yingtan Qianxi Investment Management Co., Ltd. and Shenzhen Shishin Brothers Investment Partnership for RMB 536 million.
Complementing game distribution and operation experience, improving lottery game and mobile game layout, the company has excellent lottery game R&D capabilities, system platform development capabilities and a rich product line lottery game database, and has successfully developed and stored a variety of lottery games suitable for domestic and foreign countries. Hand Games currently has more than 30 developers with rich R&D experience and excellent product ideas. The main products it operates include “Hand Mahjong”, “Happy Mahjong”, “Arcade Toad Fishing Thousand Guns Edition”. The team has rich experience in mobile internet product R&D, distribution and operation, and is good at mobile games Development and distribution, with good experience in mobile Internet business resources and operation management.
After this merger and acquisition is completed, the company will add a complete mobile game distribution and operation team to support the development, promotion and operation of the company's lottery games and mobile game products. Mobile game distribution and operation will become the company's important layout in the mobile Internet field, thus further improving the company's profitability in lottery games and mobile games.
Hand games have strong profitability to make up for Hongbo's losses
The company's revenue for the first quarter of 2017 was 138 million yuan, a year-on-year decrease of 27.22%; Guimu's net profit was -11.72 million yuan, a year-on-year decrease of 14.71%. Due to increased competition in the bidding market for ticketing products and the rise in production costs of raw materials and labor for paper products, etc., revenue and profit from the ticketing business declined year-on-year in the first half of 2017. The company expects losses of 21.89 million yuan to -16.1202 million yuan in the first half of 2017.
The shareholders of Palm Games promised that in 2017-2020, palm games will achieve no less than RMB 50 million, 60 million yuan, 72 million yuan, and 86.4 million yuan respectively. After this merger and acquisition is completed, the company's outreach and endogenous profitability will be enhanced.
Profit forecasting and investment advice
We expect that in 2017-2019, the company's operating revenue will be 988 million yuan, 1,539 million yuan, and 1,733 million yuan respectively; the net profit of the mother will be 032 million yuan, 54 million yuan and 65 million yuan respectively; EPS will be 0.10 yuan, 0.16 yuan, and 0.19 yuan respectively. The latest closing price corresponding to PE will be 194 times, 116 times and 97 times respectively, maintaining the “increase in holdings” rating.
Risk warning
The risk that the acquisition process falls short of expectations, the risk that the Internet lottery policy will be released less than expected, the risk that competition in the industry will increase, and the risk that industry sentiment will decline.