Main points of investment:
The company is in the alternating stage of new and old products, and its short-term performance is poor:
As the company launched the new game "defend radish 3" on Tencent's game platform only in mid-June this year, and the RPG game "Blade of the three Kingdoms" has entered a relatively stable platform compared with the peak performance in the first half of last year, the number of monthly payment users for RPG mobile games decreased by 66.6% to 103000 compared with the same period last year, resulting in a sharp drop in revenue in the first half of the year by 52.7%. Coupled with an one-time share payment of RMB 66.2 million, R & D expenses increased by 88% in the first half of the year compared with the same period last year, resulting in a net loss of 76.46 million, in line with the profit warning guidelines previously issued by the company. According to non-international financial reporting standards, the adjusted net profit is about 8.78 million yuan, down 92 per cent from last year. Overall, the company is currently in a gap between new and old products, that is, the decline in the number of paying players of old products and the decline in income compared with the same period last year, while the new game monetization has just started, the medium-term performance is difficult to be reflected.
Guard radish 3 performed well, and the monthly running water was relatively stable:
The company revealed in a conference call that currently the number of daily active users of "defend radish 3" is about 5 million, and the average payment rate is about 5%, so we conservatively estimate that the monthly running water of defending radish has reached more than 40 million yuan. At present, the game ranks seventh in the IOS game free list, with nearly 200000 new users per day and the 21st best-selling list of strategy games. With the huge number of users relying on Tencent and promotion in many ways, it is expected that the monthly flow will be maintained at around 50 million yuan in the future. Judging from the updated version, it is more difficult to defend radish 3, and players need to use props and turrets to get through customs. We believe that there are still many things that can be improved in the future to enhance the level of monetization. In addition, the company expects to launch the big IP games "Fairy Road 2" and "lost Journey to the West 2" between October and November. With reference to the performance of the page of "God Fairy Road 1" in the past, we expect that "Shenxian Road 2" will provide more than 20 million yuan per month this year, while "lost Journey to the West 2" will also reach the level of 10 million yuan per month.
Downgrade the 2016 performance forecast and adjust the rating to recommended:
The launch time of the company "Immortal Road 2" and "lost Journey to the West 2" is later than we expected. In addition, the launch of "defend Radish 3" did not reach our previous status of over 100 million yuan. It will have a negative impact on the company's revenue forecast for fiscal year 2016. We have lowered our revenue and profit forecasts by 2016. The current share price is about 40 per cent of the 2016 PE valuation, and the company is at a low ebb, but in the future, due to the potential for a reversal in performance, it will change its rating to a recommendation, with a target price of HK $1.51, or about 43 times the 2016 PE.