Main points of investment
The company made business adjustments in 2015, and the overall financial performance was poor. According to the company's performance announcement, the company's revenue in 2015 was 541 million yuan, down 20% from the same period last year. The net loss of shareholders belonging to the listed company was 54 million yuan, with an EPS of-0.15RMB. The full-year profit performance was lower than we expected. The decline in revenue is mainly due to the lack of mobile games launched throughout the year. From the perspective of profit performance, the gross profit margin fell by 9 percentage points, mainly due to the relatively high proportion of company agent games leading to a decline in gross profit margin. The proportion of marketing management R & D expenses in revenue has increased significantly, mainly due to the sharp increase in the company's game promotion expenses, the expansion of R & D team and the amortization of share expenses. We believe that the company's poor financial performance in 2015 is due to periodic business adjustments.
In the first quarter of 2016, popular mobile games stabilized the company's performance. The company launched the mobile game "Shushan War Swordsman Legend" on January 27, 2016 (the company accounts for 80% of the company's equity). It occupied the top 10 in the IOS list in the first month after commercialization and stabilized between 10 and 20 in the near future, with a high rating of IOS 4.5 stars. We estimate that the monthly flow of the Shushan War period will be between 40 million and 50 million. The company achieves ideal results through interactive cooperation with Anhui Satellite TV and iQIYI, Inc. in marketing "Shushan War period". It is expected that the game marketing expenses will be controlled within a reasonable range and can contribute higher profits throughout the year. At the same time, Langang Korea Branch acts as an agent to issue "Thunder Fleet" to rank among the top five best sellers in South Korea, which also lays a foundation for the company's performance growth.
2016 follow-up IP masterpiece is worth looking forward to. In the last three quarters of 2016, the company will launch blockbuster IP mobile games such as Dawn, Shushan, Soul of Kings, Baby Bee and Monster Hunt. Among them, "Dawn" is the classic PC game of Blue Port, "Shushan" is derived from Shushan IP, "Soul of King" is the popular mobile game IP, "Young Bee" is popular anime, and "Monster Hunt" is the top Chinese box office movie IP in 2015. We are optimistic about the R & D strength of the company and the popularity of the related IP, and we believe that a number of high-flow games will emerge from it to brighten the company's annual performance.
The strategic investment in axe technology is about to enter the harvest period, and the pan-entertainment strategy is advancing steadily. Axe Technology, a hardware developer for TV consoles with a $2630 investment and a 31.9% stake, will launch its first console game in May 2016. Axe Technology now holds the domestic rights to more than 50 popular overseas TV console games, and its hardware prices are lower than those of PS4 and Xbox 360s. Relying on axe's team, content copyright and low hardware pricing, we are optimistic about axe's ability to open up the Chinese TV console game market and its potential to enhance Blueport's own valuation. In addition to axe technology, Langang is also steadily promoting cooperation with strategic investment partners in the field of pan-entertainment, such as Yongle ticketing, Xingmei Holdings, Taobao, Newby Technology, Lemon WeChat and so on. Continue to expand their entertainment territory.
Risk hint. 1. The release of the company's main games has been delayed and the running water has fallen short of expectations. Marketing expenses and third-party CP expenses erode profits; 3. The layout of pan-entertainment industry leads to investment loss.
Profit forecast and valuation. In view of the good market feedback from the company's "Shushan War" launched in the first quarter of 2016, a clear launch schedule for follow-up important IP works, and a significant reduction in marketing control fees and share compensation amortization, we believe that the company is expected to reverse its performance and turn a profit in 2016. At the same time, the company has a forward-looking strategic layout in the field of pan-entertainment, and we are optimistic about the investment value of the company for a long time. Due to the company's lower-than-expected annual performance in 2016, "Legend of Zhen Huan" fell short of expectations and the release of "Legend of Miyue" was postponed, the progress of the follow-up game launch may be affected to a certain extent. We downgrade the company's 2016-2018 EPS forecast to 0.11 EPS 0.22max 0.54 yuan (the previous value is 0.12pm 0.32pm 0.64 yuan), and the current stock price corresponds to 30 times / 15 times / 6 times respectively. According to the valuation of DCF, the target price is adjusted to HK $6.65 and the "buy" rating is maintained. The company is now 100%. Most of its assets are cash and cash equivalents with high liquidity, with a high margin of investment safety. Investors are advised to actively pay attention to the allocation value at this stage.
