Report summary
Focus on the top IP “Tom Cat” to create an all-living ecosystem
The company acquired overseas game giant Outfit7 in two installments at the end of 2017 and March 2018, and introduced the top IP “Tom Cat Series” to build a global IP operator with the famous IP “Talking Tom Cat” as the core. By the end of 2018, the “Talking Tom Family” series of parent-child interactive mobile apps continued to maintain a leading edge in the industry. As of 2018, the cumulative number of global downloads exceeded 9.5 billion, the average number of monthly active users exceeded 350 million, and users remained active.
The summer program is coming, helping to improve marginal performance in the third quarter
The target audience for the company's core casual games is school-age children and young people. The arrival of the summer program in the third quarter will drive the average usage frequency and payment rate of casual games to a high point during the year. The summer season is here, and new games were launched in August. It is expected that new games such as “Tom Cat Racer” and “Tom Cat Brawl Squad” will help the 2019 H2 performance increase. For three consecutive years from 2015 to 2018, the average usage time on Android for casual games was at its highest point during the summer program. In 2018, due to version number restrictions, the game's payment rate rebounded in the summer program, and the average payment rate reached 2.65%.
Relying on the Belt and Road, IP overseas import and global export
Acquire top traffic platforms in Belt and Road countries to help cultural interaction guide the construction of the “Online Silk Road” to the whole world. Outfit7 was founded in Slovenia and created the “Talking Tom Family”, a world-famous IP that has attracted billions of users. Its mobile app has been downloaded more than 6 billion times, making it one of the largest mobile internet traffic platforms in the world. About 70% of its monthly active users come from global markets other than China. This provides an excellent channel and carrier for the current export of Chinese products and culture, as well as strong data traffic support, which will strongly promote the construction of the “Belt and Road” and the “Online Silk Road”. As a result, Jinke Culture has become one of the few media stocks benefiting from the “Belt and Road” policy, and its overseas market layout may continue to improve.
Investment advice
Affected by the macroeconomic downturn, the company's performance declined in Q1 2019, and was also affected by a decrease in advertising for upstream customers and an increase in capital R&D investment. We expect the company to achieve net profit of 10.8/131/1.47 billion yuan in 2019-2021, the EPS is 0.30/0.37/0.41 yuan, and the corresponding PE is 8.3/6.8/6.1. Considering the influence of the company's “Tom Cat” IP and its strong resource production and derivative capacity, there is still plenty of room for growth in the long run. Comparable marketing and game companies' 2019E average valuation is 15-20X. The company's current valuation is at a historically low level. We give it a “recommended” rating.
Risk warning
Gaming policy risk; macroeconomic downturn risk; risk of tightening advertising policies; risk of delayed release of game products; risk of tighter regulation of version distribution; risk of overseas markets.