Events:
On May 5, according to the disclosure of the rights and interests of the Hong Kong Stock Exchange, Zulong Entertainment was increased by Tencent to hold a total of 32.6204 million shares in bulk transactions for two consecutive days, accounting for 4% of the total share capital. after the completion of the transaction, its shareholding increased to 16.88%, involving an investment of about 455 million yuan.
Comments:
Tencent increased his holdings at a high level, and the value of the company was highlighted.
On May 5, the HKEx disclosed that Tencent had increased his stake in Zulong Entertainment to 16.88% on April 29 and April 30. The company maintains a close strategic cooperative relationship with Tencent in China and has a strong issuing advantage. In the next two years, several products will work closely with Tencent. At the same time, in recent years, the company continues to strengthen its own issuing capacity and expand overseas markets. Under Hongtuo, the performance of overseas running water exceeded expectations, demonstrating the strength of overseas self-issuance. Next year, the company will launch a global partnership with an overseas IP with a box office of $1.5 billion, which is expected to further enhance the company's global influence. The high increase of Tencent's holdings highlights the company's long-term value, and the current stock price is obviously undervalued.
Strengthen R & D barriers and embrace intergenerational changes in the industry
The company adheres to the high-quality route and continues to improve the level of product research and development. in 2020, the company added 458 employees, of which R & D accounted for 85%. The company has an in-depth understanding of the Unreal four engines and cooperates with epic on the Unreal five engines strategy to keep the technological level ahead. The company is a global leader in the field of game engine technology, and continuous R & D investment has built a strong moat for the company. The mobile game industry is in a critical period of intergenerational evolution, and companies with high R & D barriers will gain a bigger market in the future.
"Noah Heart" will be launched soon, enrich pipeline to improve performance certainty company open world MMO core product "Noah Heart" is expected to be launched domestically this summer. Illusory four engines and the company's years of MMO research and development and accumulation to ensure the quality of the product, the open world, spherical map and other elements make the product worth looking forward to. In addition, the company also has SLG, women to, RPG and other new products in research and development, we expect the company will usher in an explosion of boutique products next year.
We believe that with the overseas self-issuance business continuing to exceed expectations and the launch of Noah Star, the company's deduction of non-net profit in 2021 will increase significantly compared with the same period in 2020. It is estimated that the non-net profit deducted by the company from 2021 to 2023 will be 660 million, 895 million and 1.16 billion yuan.
At present, the company is grossly undervalued and we maintain a "buy" rating with a target price of HK $23.56, corresponding to 18 times PE in 2022.
Risk tips: new game launch delay risk; old product pipeline decline risk; policy regulatory risk; changes in overseas market environment; significant increase in R & D costs.