Recently, we have been in contact with 03798.HK to understand its thoughts on the pre-market and future development direction, especially to gather ideas and discussions from next year. We agree that the new direction of development requires time investment, or even many trials, but we believe that the new attempt is based on the realization of cash flow, and once successful, it will be an acceptable return.

Horizontally and horizontally, fill it with a large base.

As the core product of the collection, the growth of regional chess and card games can be improved, and the characteristics of low R & D investment make the collection can be replicated in different regions of the country. However, chess and card games have their limitations and limitations, including I) the low promotion rate of chess and card games, which is not conducive to stimulating consumption, ii) categories, limiting the increase of space in the future, iii) customer preference changes and market competition, and iv) in regular marketing.

Therefore, jumping out of the restrictions of chess and card games is a way to disperse the market and find another high growth point. In recent years, collectors have used leisure activities (such as "capture" and "consumption") as test points and used available channels to distribute leisure activities. The number and types of leisure events we expect will be further improved, and it is possible to introduce other categories, including moderate and severe ones, in the same collection. On the one hand, horizontal recharge can be used to collect non-systematic data from distributed chess and card games, and new models can be converted into integrated ones at the same time, especially moderate to severe ones with high investment and high return, which can be recovered once successful. Take the "Legend World" of the same industry as an example, which earned more than half of its total revenue from 00302.HK in 2018.

Vertically integrated ecological system

Based on the strategy of unified platform in the past, the products of mahjong (including mahjong, gram, etc.) are integrated into two integrated platforms, namely, micro-platform and auspicious platform. As the collection in the past focused on regional chess and card games, the two platforms mainly provided customized customer service and distributed within the region. On the contrary, the number of third-party payouts officially launched since 2018 is relatively small, dominated by leisure expenses.

As far as we know, we believe that the implementation of solid infrastructure facilities is an important one in the future, especially in the future, which requires more support, including fully developing platforms, strengthening technical support for infrastructure, and so on. For example, we believe that future development platforms include the consolidation of domestic distribution platforms and the development of overseas distribution platforms, which are used in areas other than regional chess and card development, while internal technical support is used to support the development / transformation of games other than leisure, especially for medium and heavy training, which requires high demand for leisure / chess and card development in the future. In view of the stable cash flow and abundant handheld funds, we believe that the relevant investment will be carried out through internal development or investment.

The recharge of the business depends on the customer control.

The task that the market intends to develop is critical. Even if the market is in a scale that is conducive to the development of a large scale, there are doubts about the lack of certainty, coupled with the fact that a certain amount of upfront investment is required for new development, and the ability to control the market is even more important. In particular, other types of drugs (especially moderate and severe ones) are naturally explosive, but at the same time, they have the characteristics of low certainty, high failure rate and short life, so the control of capital investment and investment rate is the focus of our attention.

Assuming that the allocation ratio is maintained at about 30%-40% per year, and at least half of the profit is retained as the retained profit, the set can be used for the profit of 10%-15% of the profit. According to our forecast, the ideal level of spending on new services in 2019 is between 2600 yuan and 3900 million yuan. At this level, we will be able to achieve a good balance in three aspects: I) maintaining stable dividend payout stocks, ii) keeping healthy capital flows for matinee  or future payouts, and iii) trying to open new payouts, and continue to grow steadily.

The new payroll is conducive to long-term growth and will be raised to HK $2.88 per share.

In view of the strong reproducibility and periodicity of our business, we are determined to maintain our commitment to the original qualitative and strong chess and card services. in particular, we are good at marketing through online / offline marketing (including market space due to regulatory guidance), so that we are confident that the growth of chess and card services can still be maintained.

At the same time, the new businesses that the cluster intends to be involved in have long-term development capabilities, although the current uncertainty is high, and it involves operating expenses such as staff and staff, as well as capital expenditure in the future. However, we believe that under the circumstances of proper financial control (especially capital investment), it is a healthy business activity to make use of the inflow of funds from financial services. Therefore, we hope that the profit over the past three years will be-1.3%-+ 3.4%. At the same time, the target price will be set at HK $2.88 per share to maintain the "premium" level, so as to reflect the short-term expenditure and long-term development goals.

Negative factor

Unintentional / indirect anti-gaming regulation regulations

There has been a change / acceptance of the regulations of gambling activities related to online banking

Chess and card games closed in the market.

Improvement of dependence on the third-party distribution platform

Excessive investment in the development of new services

The development of new services is not as effective as expected.