Sanqi Interactive (“Sanqi”) exceled itself with chuanqi-themed games and effective marketing. We keep positive on Sanqi’s healthy topline growth, backed by its solid game pipeline, category diversification and overseas expansion. We forecast Sanqi to deliver 29%/40% revenue/earnings CAGR during FY18-21E. Initiate with BUY with DCF-based TP RMB30.
- A leading MMORPG player with chuanqi-themed types and effective marketing. As a leading game developer and operator with chuanqi-themed MMORPGs, Sanqi successfully transformed from web games to mobile games operator, with high quality hot titles. Backed by its reputable R&D team and highly effective marketing, we forecast Sanqi to deliver 29%/40% revenue/earnings CAGR during FY18-21E, thanks to its strong pipeline, category diversification and overseas expansion.
- Category diversification to deliver ongoing pipeline. Backed by its successful record of chuanqi-themed MMORPGs, Sanqi will continue strengthen its position in chuanqi-themed types development, in our view. Meanwhile, Sanqi also expanded its game category into diversified types, including SLG, ARPG, casual games, etc, backed by self-development and IP investment. We expect its ongoing category expansion to help it gain shares and tap into younger generations, especially supported by recent hot titles of The Soul Land (斗罗大陆), Yi Dao Chuan Shi (一刀传世) and Jing Ling Sheng Dian (精灵盛典). Further catalyst will come from its rich game reserve, including Fantasy of Tomorrow, Glory Adventure, etc.
- Stepping-up overseas expansion to tap into broader market. Apart from strengthening its leading position in domestic market, Sanqi steps up its overseas expansion path by leveraging its advantage in traffic operation and precise marketing. According to App Annie, Sanqi ranked Top 6 in China mobile game publishers in 2Q19. With initial fruits in SEA market, we expect Sanqi to proactively explore other promising regions, like Japan, Korea, Europe and USA.
- Initiate with BUY. We set our DCF-based TP at RMB30 (implying 26x P/E in FY20E), slightly higher than industry average, for its strong pipeline and high-effective marketing. Key risks: regulation uncertainty, grossing decline of hot titles, weak performance of newly-launched games.
