Lianzhong has been the most experienced online chess and card operator in China for 20 years, constructing the intellectual movement ecosystem.
Founded in March 1998, Lianzhong is the earliest online board game developer and operator in China. It was listed on the main board of the Hong Kong Stock Exchange on June 30, 2014. In 2016, Lianzhong released the company's strategic plan, chess and card and e-sports, and built a unique intellectual sports ecosystem that integrates online games, intellectual sports events, program production and distribution, sports and entertainment, etc. And has formed five major business platforms: online games (Lianzhong games), electronic sports (alliance e-sports), intellectual sports (Chinese chess only industry), global poker entertainment (WPT) and sports e-commerce (cooperation with Lianzhong's largest shareholder sports window), effectively transforming resources and realizing the chain development of Lianzhong in the field of intellectual sports.
With a three-pronged approach of "improving products, strengthening internal management, and extending mergers and acquisitions of high-quality assets", United chess and cards are expected to get out of the haze in 2018.
As of 2017, Lianzhong Games had more than 700 million registered users worldwide and more than 200 online game products. Affected by the impact of board game room card model and changes in payment policies of operators, Lianzhong Games achieved a cumulative operating income of 414 million in the first three quarters of 2017, down 35.61% from the same period last year. The net profit attributed to listed companies lost 73.511 million, compared with a profit of 124 million in the same period last year. In the face of challenges, Lianzhong actively took measures:
On the one hand, the company actively improves the transition of payment means to third-party payments, increases the frequency of competitions, and streamlines the organizational structure. According to the company's third-quarter data, the company's net profit has been repaired from 17Q1-45 million to 17Q3-5 million, the loss has greatly narrowed, and cost control has shown a significant improvement effect. According to the trend, 17Q4~18Q1 is expected to achieve a positive endogenous performance to achieve a turnaround.
On the other hand, the company actively extended and acquired three high-quality local chess and card companies at the beginning of 2018, with a total audited net profit of not less than 82 million and 107 million RMB in 2018 and 2019.
Against the backdrop of the decline in 17H1 business, the company's management, Skynet and Sports window subscribed for 0.89,0.71 and 64 million new common shares (a total of HK $416 million) at a price of HK $1.85 per share, which is the first time shareholders have subscribed for shares since the company's listing, indicating management's confidence in the future.
E-sports of the alliance is rooted in "scene + content", has a leading international layout idea, and has great potential.
The alliance e-sports was founded on March 23, 2016, and its main shareholders are Lianzhong International (69.6%), Sports window (15.5%) and Skynet (9.9%). It adopts the global e-sports ecological model of "content + scene" and is based on offline online sports pavilions, combined with its own advantages of IP events, content production and distribution to create a global e-sports sports brand.
In terms of venues, the flagship store of the e-sports stadium jointly operated by e-sports and MGM in Las Vegas is about to open, after the venues in Beijing, Shenzhen, North America and Europe have been officially put into operation. In the next 3-5 years, the alliance e-sports will add more than 10 new home appliance competition halls to build a global e-sports network hub, and take this as the cornerstone, through the new e-sports ecological model of "content + scene".
In terms of events, the league e-sports currently has Big League (preparation), Legend Series and EsportSuperstarts, among which: 1) Legend Series has held four sessions by 2017, three sessions in Europe, and the fourth session held qualifiers in both China, the United States and Europe, and held the final three finals in the United States: Legends Cup. 2) Esport Superstarts has held one session in Germany and one in the United States, and it is expected to land in China this year.
Investment suggestion
Taking into account the company's new merger of three room card model companies in the past 18 years, coupled with the recovery of the original chess and card business and the active development of e-sports business, we estimate that the 19-year return net profit of 18 PE is HK $161 million and HK $230 million, corresponding to HK $0.15,0.21 EPS, and the corresponding current price is 13.7x and 9.8x. Taking into account the potential of the company's e-sports business, we set an 18-year target PE 20X, corresponding to the target price of HK $2.95, covering the buy rating for the first time.
Risk hint: the product performance is not as expected; the online chess and card industry policy is introduced; in the valuation comparison, the company chooses the market valuation system difference which is not the same market target.