As a leading game publisher in China, CMGE exceled itself with abundant valuable IP reserve and rich pipeline. We expect its revenue/ adj. net profit to grow at 48%/46% CAGR in FY18-21E, driven by strong momentum of key titles and rollout of new names. Initiate with BUY with TP HK$4.39 (30.3% upside).
- China’s Top 1 independent mobile game publisher. Backed by popular and high-quality IP-oriented game portfolio, CMGE is ranked Top 1 in terms of cumulative revenue generated from publishing games developed based on IPs, with market share of ~13.7%, from 1 Jan 2015 to 30 Jun 2019, according to Analysys. With its abundant IP reserve, diversified publishing network and strategic investment, we expect CMGE to deliver 48%/46% revenue/net profit CAGR during FY18-21E, thanks to its rich game pipeline.
- Valuable IP reserve to build high entry barriers. Supported by deep cooperation with IP owners and IP investment, CMGE holds the largest reserve of 99 IPs (31 licensed IPs & 68 proprietary IPs) in China. We expect CMGE to leverage its existing well-known IPs to derive abundant adapted games, and attract loyal game players with longer life cycle (e.g. One Piece – the Road of the Strong <海贼王>, Fighter of Destiny <择天记>).
- Sophisticated game publishing and rich pipeline to boost growth. Unlike most listed peers who are highly dependent on several flagships, CMGE excelled itself with strong portfolio (73 active games) and pipeline to guarantee stable performance. Leveraging its rich experience in game publishing, hot titles and valuable IPs, we expect CMGE to directly benefit from its flagship titles and strong pipeline of 29 games (19 of them have obtained ISBN registration). We estimate CMGE’s game publishing to deliver 46% revenue CAGR in FY18-21E, and account for 80% of total revenue in FY19E, mainly attributable to both ramp-up of MAU and ARPU. We expect SNK Top Battle (<SNK巅峰对决>), Dynasty Warriors (<真•三国无双>) and One Piece: The Voyage (<航海王热血航线>) to deliver meaningful contribution in FY20E.
- Initiate with BUY. We set our DCF-based TP at HK$4.39 (implying 11.4x FY20E P/E), still below industry average of 22x P/E. Valuation is attractive. We believe CMGE’s positive price drivers and catalysts originate from: 1) strong game pipeline; 2) eye-catching 1Q20E grossing benefiting from the epidemic; 3) potential annual result surprise & dividends in Mar; and 4) upcoming inclusion into HK-China stock connect.
