Review in 2020
The company reported results for fiscal year 20, with revenue up 15 per cent year-on-year to 3.212 billion yuan (RMB, the same below), while net loss fell 257 per cent year-on-year to-565 million yuan. The loss is mainly due to the impairment provision of 494 million yuan for Shanghai Fire Soul Goodwill. The adjusted profit is 149 million yuan, mainly from the stable income of "Dream Garden", "Dream Home" and "Magic Baby" mobile version.
During the COVID-19 epidemic, the increase in free time pushed the number of monthly paying users to 6.2 million in the first half of 20, but fell slightly to 5.9 million at the end of fiscal year 20, up 3.5 per cent from 5.7 million in fiscal year 19. The average income of paying users was 38 yuan, an increase of 19.1% over the same period last year.
The newly split revenue segment, SaaS and offline stores recorded significant growth, with an increase of 130% and 28% respectively over the same period last year.
Given the low base of these two businesses (SaaS / offline store revenue: 3800 million yuan / 6 million yuan in fiscal 20), the future growth and profitability of these two parts have yet to be proved.
Prospects for 2021
A large number of games are under preparation: Dream World will continue to make use of its existing advantages in the industry to focus on self-development of Sanxiao games and competitive games. Games in the pipeline include "Little Animal Star" (2Q21), "Glory all-Star" (2021), "Dream Restaurant (overseas version)" (2021) and "Witch Diary"
(2022).
Explore new growth engines: the company will further invest in the development of SaaS business and offline store business, with the goal of opening 30 direct offline stores by 2021, of which the first national QQ Family flagship store is scheduled to open in June 2021. The company estimates that offline stores can break even within six months.
Maintaining a fair value of HK $4.00, based on a price-to-earnings ratio of 9 times 2022 overall, we expect net profit to turn profitable in fiscal 21. However, due to the delay in the launch of new (i) games, (ii) has increased investment in the new business segment SaaS and offline stores in fiscal year 21, while it is expected to profit in or after the uncertainty of future growth of, (iii) SaaS and offline stores in fiscal year 22. We expect revenue growth in fiscal year 21 / 22e to slow to 13% / 10%. We have lowered our forecast and reasonable valuation to HK $4.0, based on a price-to-earnings ratio of 9 times for fiscal 22 to reflect these factors.