Main points of investment:
Q1 performance summary and outlook: in the first quarter of 2016, the company achieved revenue of 195 million yuan, an increase of 18.5% over the same period last year, of which PC game revenue increased by 58.7%, mainly due to the addition of WPT, mobile game revenue decreased by 31.1%, mainly due to operators further tightening the charging code, the first quarter net profit was 33 million yuan, down 17.6% from the same period last year. Mainly due to the marketing expenses incurred by WPT in hosting overseas events (more than 20 games were held in the first quarter). It is expected that WPT will launch new mobile games in the second half of the year, and this part of overseas revenue will hedge against the impact of operators to some extent. In addition, with the company's integration of WPT and cost control, it is expected that the rate of sales and administrative expenses will return to a reasonable level in the second quarter.
The five major platform systems are established: Lianzhong is the leading developer and operator of board games in China, and its core advantage is the brand and the offline platform that can run through. In the past four years, the company's operating income and net profit have achieved sustained growth in a stable situation, with a good gross profit margin, stable PC game profits and rapid growth in mobile game profits.
The company launched the "5G" new logo on April 22, 2016, marking the strategic position of the company focusing on the construction of five major platforms. In the future, Lianzhong will shift its business center from board games to an intellectual sports ecosystem that includes games, e-sports, Chinese intellectual sports, global competitive entertainment, and sports e-commerce.
The layout of e-sports 's industry has a solid foundation and a bright future: Lianzhong holds a 10% stake in "Internet Fish Internet Cafe", the largest chain Internet bar brand in China. At the end of 2015, Lianzhong partnered with Internet Fish Internet Cafe to set up the first online fish e-sports hall in Beijing Workers' Stadium. Lianzhong owns 51%. In March 2016, Lianzhong, Internet Cafe, 360 Games, Air Network, Palm fun Technology and Sports window jointly formed the "Alliance e-sports" to create an international e-sports platform, and plans to open the first e-sports theme pavilion in Las Vegas within 2016. As the forerunner of domestic intellectual sports, Lianzhong is expected to take the express bus with the rapid development of e-sports industry, and become the leader of domestic e-sports industry with its own solid foundation.
Expand the influence of Wisdom: in June 2015, United bought Peerless Media Ltd, the operator of the World Poker Tour, for $35 million. The entire share capital of. WPT is the top Texas hold'em event brand in the world, and this event has strengthened United's position as a leader in intellectual sports. The company has also been granted an exclusive license for the next four years of the World Bridge Championships. The 13th five-year Plan for Sports Development issued by the State General Administration of Sports makes it clear that by 2020, when the scale of the sports industry reaches 3 trillion yuan, Lianzhong, as the only platform partner in the chess and card center of the General Administration of Sports, is expected to expand the effect of government-enterprise cooperation. to further consolidate its position in the development of intellectual sports in China.
Valuation and rating: we expect the company's annual net profit in 16-17-18 to be RMB150 million, RMB 215 million, respectively, and its EPS is RMB0.19, 0.27, 0.32 (HK $0.22, 0.32), respectively. The company's cash flow is stable and its financial position is good. We gave the company 20 times Pamp E in 2016, corresponding to the target price of HK $4.50, maintaining an "overweight" rating.
Risk hint: the overseas expansion of e-sports 's industry may not be as expected, and the prospect of intellectual sports is uncertain.