The company provides for the impairment of Zhe Xin's goodwill at one time, fully releases the risk, and continues to focus on the development and operation of "Tom Cat Series IP" in the future. The company's "Tom Cat Family" IP has high-quality assets, with 370 million monthly active users worldwide. Thanks to cooperation with byte jumps, increased investment by domestic Internet companies, continuous optimization of the advertising system and increased development of IP derivative business, the company's performance is expected to maintain high growth for a long time. The current stock price is only 13x PE corresponding to the 20-year forecast results, which should be undervalued. We expect the company's valuation to be fixed to 20x PE, with a target price of 5.02 yuan, maintaining a "buy" rating.
Subsidiary Hangzhou Zhe Xin Goodwill clear, focus on Tom Cat IP operation, the management structure is expected to continue to improve. The company issued a 2019 performance forecast with an estimated loss of 2.39 billion-2.4 billion yuan. The loss is mainly due to the fact that the company made an one-time provision for the impairment of the goodwill of the subsidiary Hangzhou Zhe Xin, resulting in a loss. We believe that the company's one-time provision for impairment of the goodwill of the company is conducive to the release of risk. At the same time, Zhe Xin goodwill impairment provision is conducive to the continuous improvement of corporate governance structure, more focused on the development and operation of Tom Cat IP.
The scale of leisure game users is large, and the advertising business promotes the ability of commercialization. Casual games have the characteristics of large user base and high stickiness. The number of monthly active users of domestic leisure mobile games reaches 370 million, with 57.9 minutes a day; overseas leisure mobile games have always occupied the mainstream market, with the global monthly active users of leisure mobile games reaching 860 million, with an average of more than 10 times a week. With the popularity of reward video, the commercialization ability of casual games continues to enhance.
The company's "Tom Cat Family IP" is constantly updated and its advertising business is constantly optimized. The company is constantly updated based on the "Tom Cat Family" IP, early single voice change software evolved into nurturance games ("my Tom Cat 2", "my Angela", etc.), and has Tom Cat, Angela, Hank Dog and other IP images. Based on its own IP, the company has continuously expanded its product matrix and developed casual games such as "Tom Cat Parkour", "Tom Cat Water Park" and "Tom Cat Hero Parkour". At present, the company has 370 million monthly active users around the world, and has a reserve of more than 10 types of casual games (all of which have obtained version numbers). In the advertising business, the company continues to update advertising forms and optimize advertising delivery. In the domestic and byte jump in-depth cooperation, the Android end fully integrated into the pangolin system. Overseas benefit from domestic Internet companies to go to sea, increase overseas channels, advertising rate continues to rise.
Deeply excavate the value of IP, expand educational business, and lay out the 5G era. The company increases the development of "Tom Cat Family" IP derivatives: 1. Launched animated film and television works, which have been broadcast more than 40 billion times worldwide, and landed on CCTV in December 19. To develop IP derivatives, Tom cat dolls sold out during the same period when the TV series "Elite lawyers" was broadcast; 3. Tom Cat Paradise has been built and opened one after another in Hangzhou, Hefei and other places. At the same time, the company has actively expanded its education business, developed children's picture books, books and other products, and cooperated with China Mobile in cloud games, VR games and other products.
Risk factors: policy regulatory risk; macroeconomic risk, advertising marketing market pressure; IP derivatives landed less than expected
Investment suggestion: according to the company's annual performance forecast in 2019, goodwill and other asset impairment, we downgrade the company's EPS forecast for 2019 to-0.66 PE 0.25 PE 0.29 yuan (originally 0.52 PE 0.69 yuan), the current price corresponds to 2020 PE 2021 is 13 11 times, considering the company's huge user scale and long-term sustainable development, we think the company's current valuation is undervalued. It is expected to be repaired to the average valuation of A-share game companies at 20X, corresponding to the target price of 5.02 yuan, maintaining a "buy" rating.
