FriendTimes (6820 HK, BUY)'s key title Tale of Empress (<浮生为卿歌>) performed well in May & Jun, staying stable at TOP5-10 in iOS grossing rank in early Jun. We expect more catalysts to come, including upcoming launch of ToE South Korea version and new version of Yokai Kitchen (<精灵食肆>) in Jun & Jul. We reiterate our confidence on its FY20E growth, backed by ToE upbeat, epidemic positive impact and new titles rollout. We raised its earnings by 4.5%/2.1% in FY20/21E, and lifted FT’s TP from HK$3.3 to HK$4.0 (implying 13.5x FY20E P/E), coupled with sector valuation rebound. Valuation at 10.7x FY20E P/E is still attractive.
- <Tale of Empress> at Top5-10 in iOS grossing rank. ToE ranked Top 5-10 in grossing rank in early Jun (vs. Top 30-50 in Jan, Top 20-25 in Feb, Top 12-20 in Mar, Top 9-15 in Apr, Top 5-15 in May), with daily grossing at RMB4.0-5.0mn (vs from RMB0.6-1mn in Jan, RMB2mn in Feb, RMB2.5-3.5mn in Mar, RMB3.5-5.5mn in Apr & May). We estimate its monthly grossing up to around RMB120-130mn in May, and RMB130-150mn in Jun (vs. RMB40mn/RMB60mn/RMB80mn/>RMB100mn in Jan/Feb/Mar/Apr). We keep confident on ToE’s strong momentum, and expect its upcoming launch of ToE South Korea version (in Jun) to bring further upside. We expect its South Korea version to contribute RMB10-20mn monthly grossing, and ToE to beat its previous target of annual grossing RMB1bn in FY20E.
- More catalysts to come. 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>). We expect the new version of Yokai Kitchen (<精灵食肆>) to be launched in 3Q20E, and modern woman game in 4Q20E. Backed by its solid high-qualified pipeline, we keep positive on its future performance and earnings upside. For conservative estimates, we still forecast insignificant contribution from new titles.
- Maintain BUY. Given its stronger performance of ToE, we slightly raised its earnings by 4.5%/2.1% in FY20/21E, and lifted our TP from HK$3.3 to HK$4.0 (implying 13.5x FY20E P/E), still largely lower than industry average of 20x. We believe COVID-19 positive impact, strong ToE, and sector valuation rebound should help it re-rate. Further catalysts: 1) new titles to be launched; 2) stronger grossing of ToE, with upcoming South Korea version (in Jun); and 3) new version of Yokai Kitchen (<精灵食肆>).
