FriendTimes (“FT”)’ delivered solid FY19 results, with revenue/adj. net profit +15% YoY/+23% YoY in 4Q19, -2%/ +3% compared to our estimates. FT announced final dividend of HK$0.1 per share (to be paid by 30 Jun), suggesting 4% yield ratio. We turn more confident on its continuously rising grossing of “Tale of Empress＂in 1H20E. Benefiting from COVID-19, FT was expected to see strong 1H20E, with eye-catching ToE and solid existing games. We slightly raised its earnings by 1%/1% in FY20/21E, and lifted FT’s TP from HK$3.1 to HK$3.3 (implying 11.6x FY20E P/E). Valuation at 7.6x FY20E P/E is still attractive.
- Strong FY19 financials. FY19 revenue grew 15% YoY, in line with our estimates. Net profit grew 23% YoY, 3% above our estimates. FY19 solid performance was primarily on contribution of Royal Chaos and Rise of Queendom. We are also impressed by its overseas revenue with 106% YoY growth, accounting for 33.7% of total revenue. Looking ahead, we expect FT's strong momentum to continue in FY20E, thanks to ToE(<浮生为卿歌>)'s eye-catching performance and solid existing games with COVID-19 benefit.
- <Tale of Empress> to hit Top12 in iOS grossing rank. We keep confident on ToE’s grossing momentum. According to App Annie, ToE's iOS grossing rank kept stable at around Top 12-20 in Mar (vs. Top30-50 in Jan, Top 20-25 in Feb), and climbed to Top 12 on 26 Mar 2020. Given its wide popularity and epidemic benefit, we estimate its monthly grossing up to around RMB70-80mn in Mar (vs. RMB40mn/RMB60mn in Jan/Feb). Its daily grossing was estimated to be RMB2.5-3.5mn in Mar (from RMB0.6-1mn in Jan, RMB2mn in Feb). We see high visibility for its daily grossing to continuously climb in 1H20E.
- Four new titles rollout ahead in 2020. Apart from new language versions, there are four new self-developed titles in 2020 pipeline, including modern woman, casual elimination and female Xianxia games. (e.g. Fate: The Loved Journey <此生无白>). For conservative estimates, we forecast insignificant contribution from new titles except for ToE and Yokai Kitchen (<精灵食肆>). But we keep positive on its solid pipeline and further grossing upside.
- Maintain BUY. Given its stronger performance of key titles, we slightly raised its earnings by 1%/1% in FY20/21E, and lifted our TP from HK$3.1 to HK$3.3 (implying 11.6x FY20E P/E), still largely lower than industry average of 20x. We believe the epidemic and strong 1H20E should help it re-rate. Further catalysts: 1) rising ToE; 2) launch of new titles; and 3) benefit from COVID-19.
