Key points of investment
Company Overview: Actively deploying mobile online games, performance has ushered in growth. The company is the first online game company listed on the GEM market in China. Its main business includes independent development, distribution and operation of online games. The product line includes large client games, web games, and mobile games. Net profit of 17.51 million yuan was achieved in the first half of 2013, an increase of 66.5% over the previous year. Of these, net profit of 13.66 million in the second quarter was 25.5% higher than in the first quarter. We believe that mobile games will start gaining strength in the second half of 2013, which is expected to be another driving force for the growth of Zhongqingbao's performance.
Industry analysis: The game industry is developing rapidly, and platform-based operation has become a market trend. The online game industry maintained steady growth in 2013, and the overall market size will be close to 82 billion yuan. Among them, the rapid growth of mobile games and page games will be the driving force, and the total market share is expected to exceed 30% by the end of the year. The rapid spread of smart phones has laid the foundation for the rapid development of mobile online games; the popularization of 3G and the acceleration of 4G network construction will solve the bottlenecks in the development of mobile online games, and the internationalization strategy is a new driving force for the growth of the Chinese game industry.
Company analysis: “Four horizontal and one vertical” enhances the overall competitiveness of the platform. Zhongqingbao's business center is gradually shifting to faster growing web games and mobile online games. At the same time, it is actively preparing to lay out the future social gaming business, forming a business pattern where the four lines of mobile games, page games, mobile games, and social networking go hand in hand. In 2013, the company launched various works such as “Three Kingdoms”. In terms of game operation, proprietary platforms are the main focus, accounting for 84% of revenue. In terms of gross margin, independent operation has a higher gross profit margin.
Actively seek epitaxial expansion and achieve synergies through integration. The company plans to acquire 51% of the shares of Shanghai Meifeng Digital and Shenzhen Sumo Technology respectively. We believe that the acquisition plan represents a breakthrough in the company's outbound expansion, and at the same time, the target business of the acquisition is expected to increase the company's performance. From a strategic perspective, the company has a high degree of compatibility with the business of Meifeng Digital and Sumo Technology, which can share talents, technology and market resources, and generate “1+1>2” resource integration value. We believe that the company will focus on the mobile internet smart mobile game field through the acquisition target.
risk factors. Corporate governance risks; the growth rate of new business falls short of expectations, product ideas fall short of expectations; the speed of promotion of outbound acquisitions and management and integration risks.
Profit forecasts, valuations, and investment ratings. Based on our predictions of the company's mergers and acquisitions process and our expectations through our own business development and outreach targets, it is predicted that the company's 2013/2014/2015 EPS forecast after dilution is 0.41/0.92/1.25 yuan/share, the current price is 45.64 yuan, corresponding to the 2013/2014/2015 PE of 111/50/37 times. Considering the explosive growth in the industry where the company's business is located and the financial indicators are growing rapidly, we gave it an “increase” rating for the first time. Referring to the valuation of similar companies, we gave it 60 times PE in 2014, corresponding to the valuation of similar companies. The target price is 55 yuan. It is recommended that forward-looking institutional investors focus on target price and midline value to seize investment opportunities.
