Main points of investment:
The release of high-quality leisure games started, and actively expand the business of SaaS and offline stores. Founded in 2011, the company initially focused on mobile game distribution business, successfully launched "Metro parkour", "Temple Run 2", "Dream Garden", "Dream Home" and other global boutique games, becoming a leader in the field of leisure game distribution. In September 2017, the company established the offline experience store brand "good time Movie Club" to provide users with a comprehensive digital entertainment experience through online and offline mode. In 2020, games and information services, SaaS and other related services, and offline entertainment services accounted for 98.6%, 1.2% and 0.2% of total revenue, respectively.
Tencent holds 18.59% of the company as the second largest shareholder, and the company has maintained in-depth cooperation with Tencent in games, advertising, animation and other fields since its inception.
The game business grows steadily and the new business develops smoothly. Games are the basic part of the company's business, contributing 87.3% to revenue in 2020, mainly benefiting from the company's best-selling games. Such as "Global Action", "Dream Garden", "Dream Home", "National Champion Football" and "decisive Mafa" and other stable performance. Due to the company's strategic deployment and the increase in investment in SaaS and other related services and offline entertainment business, the revenue of these two businesses was 38.15 million yuan and 6.49 million yuan respectively, an increase of 130.1% and 27.9% respectively over the same period last year, and the development of new business is progressing smoothly.
Build online + offline 24-hour entertainment life circle. 1) Game business: in 2020, the number of monthly active users of the game business increased by 5% compared with the same period last year to 138 million, the payment rate was stable at 4.3%, and the average income of monthly paying users also increased by 19.1% to 38 yuan compared with the same period last year. The company also continues to invest in strengthening its self-research capability. The R & D expenditure in 2019 and 2020 was 191 million yuan and 325 million yuan respectively, an increase of 92.8% and 70.2% respectively over the same period last year. In the future, self-research games will focus on "brand" elimination and high DAU competitions, and will be introduced into moderate and heavy games on consoles and PC by investing in or customizing products.
2) SaaS business: with the technical support capability of Taiwan and China over the years, the company has incubated into an interactive product lifecycle SaaS tool. In 2020, the company's revenue from SaaS and related services reached 38.15 million yuan, an increase of 130.1% over the same period last year, covering more than 300 B-end customers in the market.
3) offline store business: the company has two theme brands, "Tencent Video good time" and "QQ Family", and has opened 8 direct offline stores in Guangzhou and Shenzhen. The offline business achieved 6.486 million yuan in revenue in 2020, with a gross profit margin of 63%. It is planned to add 30 direct stores in 2021, and 2021Q3 will open the first QQ Family flagship store in the country.
Profit forecast and valuation analysis. We predict that the company will achieve a net profit of 23.69 million yuan, 353 million yuan and 462 million yuan from 2021 to 2023, an increase of 105.4%, 1390.6% and 30.7% over the same period last year. By using the segment valuation method, it is concluded that the reasonable market capitalization of the company in 2022 is about 8.80 billion to 11.12 billion yuan, corresponding to a reasonable value range of 8.32 to 10.52 Hong Kong dollars per share, which is given a "better than the market" rating for the first time.
Risk tips. Strict supervision; self-research game research and development is not as expected; fierce competition in the industry.