CMGE delivered solid FY19E results, with topline/bottom line +90%/82% YoY. Looking ahead, we expect CMGE to see strong 1H20E under COVID-19 benefit, and deliver solid growth in the run long, backed by valuable IP reserve, rich pipeline and Tencent & Toutiao cooperation. We keep our forecast and TP unchanged. Maintain BUY with TP of HK$4.39.
- Solid FY19. FY19 revenue grew 90% YoY, slightly below our estimates. Net profit grew 82% YoY, 0%/12% above our estimates/consensus. Such strong growth was primarily due to contribution of World of Legend – Thunder Empire (传奇世界之雷霆霸业). CMGE also announced final dividend of HK$0.0355 per share, suggesting 1% yield ratio. Looking ahead, we expect CMGE to perform well in both 1Q20E (benefiting from COVID-19) and long run, and forecast its revenue/ adj. net profit to grow 28%/31% YoY in FY20E.
- Four key titles with Tencent & Toutiao cooperation to guarantee FY20E growth. Based on our cross check, we estimate its game grossing at 58%/50% YoY growth in 2020 CNY/1Q20E, benefiting from the epidemic. Among its 29 games in pipeline, We expect SNK Top Battle<SNK 巅峰对决>, Dynasty Warriors <真•三国无双> , One Piece: The Voyage <航海王热血航线> and Monster List <妖怪名单> to deliver meaningful contribution in FY20E, generating RMB600mn/RMB1bn/RMB1bn/RMB600mn grossing in FY20E, backed by Tencent & Toutiao’s cooperation.
- Chuanqi-themed games to bring upside. We expect CMGE’s five Chuanqi-themed games to contribute RMB2-3bn grossing. One chuan-qi themed game was launched in Jan, with monthly grossing > RMB60mn. We expect its heavy promotion in Mar to bring upside. On top of that, there are over 15 IP games to be launched in 2020 (e.g. series of The Legend of The Condor Heroes <射雕三部曲>.
- Maintain BUY. We barely changed our forecasts, and keep our DCF-based TP of HK$4.39 unchanged (implying 11.4x FY20E P/E), still below industry average of 20x P/E. Valuation is attractive. We believe CMGE’s positive price drivers and catalysts originate from: 1) strong game pipeline; and 2) eye-catching 1Q20E grossing benefiting from the epidemic.
