Highlights of 2016: overseas markets, offline games and video games
3Q15's operation shows signs of improvement, but the progress of recovery remains to be seen.
Downgrade 2015-17 earnings forecast, maintain neutral rating, and give new target price HK$3.7
Overseas markets, offline competitions and video games will be the company's main attractions in 2016.
Boya launched new products such as "Sangong", "Poding" and "Domino 99" suitable for local culture in the Southeast Asian market this year, and effectively promoted them through social platforms such as Facebook Inc. We believe that the above games are expected to enter the revenue contribution period in 2016. In terms of offline competitions, Burson's first BPT International Poker Competition was successfully held in Macao, attracting tens of thousands of players to recharge online to participate in the primaries. We believe that holding a competition can enhance the player's experience and stimulate the player's desire to recharge more effectively, thus improving the flow of the game. Burson plans to increase the frequency of online and offline competitions and set up corresponding prizes in 2016 to drive the growth of the company's game revenue. In addition, the monetization process of Burson's games after the launch of smart TV platforms such as Tmall Magic Box, Letv TV and Skyworth is also worthy of attention.
The negative impact of SMS recharge suspension is being eliminated, and the company's profits will gradually return to normal.
We note that Boya has actively developed other online recharge channels such as Alipay and WeChat Pay in 3Q15 through 1) improving the user experience of the game by adding new ways of playing, and 3) holding various online and offline competitions to effectively reduce the impact of SMS recharge suspension. The company's 3Q15 revenue only decreased by 1.6% from the previous month, but realized a net profit of 62 million yuan (2Q15: 16 million yuan) and a gross profit margin of 56% (2Q1515), while the company's core operating indicators such as daily active users, monthly active users and ARPPU significantly improved compared with the previous month. Therefore, we believe that when the external bearish is eliminated, its revenue and profits will gradually return to the normal growth path.
Downgrade earnings forecast and maintain neutral rating
Although we recognize the company's negative measures to deal with the industry and strategic deployment in 2016, the long life cycle of board games also determines that the company's performance recovery will be gradual, and the speed of recovery remains to be seen. Therefore, we believe that the probability of explosive growth in the company's revenue and earnings in the short term is low. Due to the negative impact of this SMS recharge suspension on the industry than we had expected, and we did not significantly reduce our earnings forecast for 2015-17 by 13.3%, 28.2%, 33.4%, and 25.5%, respectively, for the adjusted net profit forecast of the company. 45.5%. The company's current share price corresponds to 9.6x 2016E Pamp E (industry average: 10.5x). We maintain our neutral rating on Burson Interactive and give the new target price HK$3.7 based on the market average 10.5x 2016E PCME.