Recommendation logic: 1) short-term offline store expansion brings performance increment: the company has a number of offline stores including mainframe entertainment experience and retail, with scarce traffic entrances, and is expected to add 30 direct stores in 21 years and 150 in 3 years. For premium products and bubble Matt, the average value of the two PS in 22 years is 7.68X. Considering the high growth rate of offline stores in the next 3 years, they should enjoy a higher valuation premium. 2) in the medium and long term, there is a poor expectation of the development logic: the company started as an agent of overseas boutique games, and all the agency products obtained the source code. Over the years, it has accumulated rich distribution experience and cultivated the ability of self-research. Centering on the advantage of game ability, the company forms an interactive mode of more users, higher frequency and longer period of time through online and offline coordination, and the business scale and LTV are expected to achieve double improvement. The value of the single user of the standard IGG is 254yuan, while that of the company is only 38 yuan. The market on the company's game LTV upper limit and medium-and long-term logic estimation is insufficient, the future valuation repair space is large.
Game business: focus on the three core tracks and attach importance to long-term LTV. In 2020, the company completed the strategic carding and focus, established to eliminate, competitive, moderate and severe as the main development of the track, not only in line with the company's comparative advantages, but also has a better commercial prospect. Competitive category + e-sports event operation makes the game have a higher LTV expectation-with a large user base, strong social attributes, high replay brought by a single game and other characteristics with a long life cycle, and further strengthened by e-sports events. The company's self-developed product "Little Animal Star", which was launched in May this year, is a concrete example of the above logic. It is differentiated enough to find space in the "chicken eating" track where there is no living space, and its performance exceeds expectations after the game is launched. Follow-up resources will be increased to optimize performance, daily operation, and supplement content production capacity. The subsequent online version of "Zootopia" will greatly increase the scalability of the game. Be optimistic about the follow-up business performance of the game after commercialization.
Offline stores: "good times + QQ Family" dual-brand operation, in-depth connection with major shareholder Tencent, single-store mode can be quickly copied. In 2020, the company adjusted and upgraded the business model of offline stores and ran the operation model, and obtained the QQ Family brand license in March this year, the game console experience + retail format was further expanded, and QQ Family is expected to further drain the stores with its IP influence. When the front-line offline stores are located in Guangzhou and Shenzhen, according to the company's plan, the number of stores will expand to 30 this year and from 2023 to 150. The replication of individual stores under the model will bring short-term performance increments and help to create an integrated ecology of online and offline integration in the medium and long term, so as to achieve a resonant increase in the number of users and user value.
Profit forecast and investment advice: it is estimated that the EPS for 21-23 years will be 0.05pm 0.21max 0.36RMB respectively, giving the company a market capitalization of 8.9 billion yuan for 22 years using the SOTP method, corresponding to a target price of HK $8.45and maintaining a "buy" rating.
Risk tips: the online progress of the game is not as expected, the epidemic situation is repeated, and the speed of offline store development is not as fast as expected.