Based on our recent cross check, we turned more positive on FriendTimes (“FT”)’s grossing momentum of its newly-launched “Tale of Empress＂ (<浮生为卿歌>). We see high visibility for its daily grossing up to RMB3mn in Mar (vs. previous target of RMB2mn), with upcoming enhanced version. Benefiting from the epidemic, FT was expected to see strong 1H20E, with eye-catching ToE and solid existing games. We lifted FT’s TP from HK$2.0 to HK$3.1 (implying 11.0x FY20E P/E), to reflect recent sector valuation rebound and FT’s stronger grossing of new titles. Valuation at 8.1x FY20E P/E is still attractive. Maintain BUY.
- “Tale of Empress” strong momentum to continue. We turn more confident on ToE's grossing momentum. According to App Annie, ToE's iOS grossing rank kept stable at around Top 20-25 in Feb (vs. Top 30-50 in Jan), and climbed to Top 17 on 22 Feb 2020. Given its wide popularity and epidemic benefit, we estimate its monthly grossing up to around RMB60mn in Feb (vs. RMB40mn in Jan). Its daily grossing was estimated to be over RMB2mn in Feb (from RMB0.6-1mn in Jan), with peak grossing at RMB2.8mn. With upcoming enhanced version, we see high visibility for its daily grossing to continuously climb up to RMB3mn in Mar, suggesting monthly grossing of nearly RMB90mn, if executed well. Given ToE's unique user target and life cycle, we think it was still at early growth stage.
- Existing games trend well, with benefit from epidemic. With time spent shift to online leisure & MAU in the epidemic, we estimated its existing games (e.g. Legend of Empress (<熹妃传>), Royal Chaos (<熹妃Q传>) to deliver solid growth in 1H20E, even without heavy marketing efforts. On top of that, Yokai Kitchen (<精灵食肆>), another well-anticipated new game launched in 2019, saw healthy operation metrics in recent month. Despite moderate grossing contribution so far, we expect the updated version of Yokai Kitchen to bring more upside.
- Maintain BUY. Given recent game sector valuation rebound and stronger performance of key titles, we lifted our TP from HK$2.0 to HK$3.1 (implying 11.0x FY20E P/E), still largely lower than industry average of 20x. We believe the epidemic and FT’s strong growth in 1H20E should help it re-rate. Our financial forecast was barely changed. More catalysts to come: 1) solid FY19E results; 2) rising Tale of Empress and launch of new titles; and 3) potential dividends (~30% payout ratio).
