Report summary:
The company is at a critical stage of development from mobile games to mobile games. As of 2018, it has been ten years since the company was founded. During this period, the company focused on mobile game research and development, and successfully developed the three mobile game products “Expedition”, “Longwu”, and “Undefeated Legend” based on the boutique positioning of three years. The company started a mobile game project in 2016. Currently, the company is in a critical development stage from end to hand. The first mobile game “Expedition” was officially tested on June 7, 2018. At the same time, the company's reserve of 3 mobile games and 2 mobile games are in the R&D testing stage.
The integrated capability for mobile game R&D was seamlessly transformed into mobile game R&D. With an independent operating model as the core, the company operates its three boutique mobile games “Expedition”, “Dragon Warrior” and “Undefeated Legend”, and has established a refined operation system based on data and guided by user behavior. The refined operation system will protect the company's first mobile game R&D and operation integration. It will not only help improve the product success rate, but also enhance the company's profitability and highlight the company's competitive advantage.
Good at developing national warfare games. With IP support, I'm optimistic about the performance of the “Expedition” mobile game after launch. The company is good at developing games in the Battle of Nations category. “Expedition” and “Undefeated Legend” are all outstanding works in the Battle category developed by the company; “Expedition” IP is also an MMO mobile game IP currently scarce in the market. By the end of 2017, the mobile game “Expedition” had more than 33 million registered accounts. At the same time, the company spent about three years refining the “Expedition” mobile game. We are optimistic about the performance of this work after it goes live.
Investment advice: From an investment perspective, we believe that the company has strong continuous development capabilities for boutique games and is optimistic about the launch performance of the first mobile game. We expect the company's net profit in 2018-2020 to be 168 million yuan, 205 million yuan, and 249 million yuan respectively, and the corresponding PE is 25X, 20X, and 17X respectively. Based on the company's current market capitalization of 4.1 billion yuan, which is in a rapid growth stage, and the company's cash and wealth management products exceed 1.6 billion yuan, we gave the company a 2018 30X PE valuation and a corresponding target price of 50.40 yuan (the target price corresponds to 2018 PE 20 times after subtracting cash reserves from the market value), giving it a “highly recommended” rating.
Risk warning: Risks such as too fierce competition in the mobile game industry and falling short of expectations from end to end.