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iDreamSky Technology (1119 HK) - 2H19 preview: every cloud has a silver lining

作者: Matt MA,Leo LIU,Calvin NG
時間: 2020年01月23日
重要性: 一般報告
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摘要: Report title:iDreamSky Technology (1119 HK) - 2H19 preview: every cloud has a silver lining
Analyst:Matt MA,Leo LIU,Calvin NG
Report type:Company
Date:20200123
[Summary]

■ Game biz should receive slower than expected growth in 2H19
■ Several new games’ releases got postponed to early-mid 2020
■ Maintain BUY with TP revised down from HKD6.3 to HKD6.2
iDS’ game business slam on brake in 2H19
We revised down iDS’ total revenue growth to 21%/10% yoy and expect revenue to reach RMB2.9bn/1.4bn in FY19E/2H19E, mainly attributable to the hiccups Company has experienced in its game business and offline experiential stores in 2H19. We expect game business’ growth to decelerate in 2H19, given: 1) worse than expected performance from key games including Cross Gate and Battle against Marfa; and 2) delay of releases on several new games, including Rakshasa Street (expected to launch in Jun-Jul 2020), DreamWorks Adventure (Mar-Apr 2020) and Art of War 3 (Jun-Jul 2020). As a result, we currently forecast iDS’ game revenue to grow at 20% yoy and reach RMB2.5bn in FY19E, still faster than mobile game industry’s 13% yoy growth. We also expect Company’s overall GPM to decline 0.9pp hoh to reach 46.3% in 2H19E, given: 1) existing self-developed games’ (higher margin) declined gross rankings; and 2) postponed new self-developed games’ releases. On Company’s possible acquisition on Leyou, both parties have agreed to further extend the Exclusivity Period to Jan 30. We feel it is likely to be postponed again given the upcoming CNY festival.
Offline experiential stores could ramp up more stores in 2020
On offline stores, no new stores were opened in 2H19 despite Co. has signed contracts with 30~40 joint-operation partners. iDS would also amend the terms of cooperation on joint-operation stores so they are more favorable to partners. Moreover, iDS’ existing offline stores have gradually found sustainable revenue sources from show-room services and refreshment sales. As a result, mgmt. believed this duplicable business model could ramp up 80~100 joint-operation stores in 2020. Currently, we estimate offline experiential stores’ revenue to reach RMB22.3mn/12.9mn in FY19E/2H19E.
Maintain BUY on iDS; TP revised down to HKD6.2
We continue to favour iDS for its: 1) unique position in Tencent’s ecosystem; 2) diversified game portfolio to avoid the hit-or-miss risk; and 3) ability to acquire licensed games’ source codes to extend their life cycles. We revise FY19E/20E/21E top line by -7.7%/-8.0%/-10.6%, and adj. NP by -15.8%/ -13.9%/-12.3% to reflect: 1) lower than expected game rev and no. of new offline stores in FY19E; 2) postponed new game releases; 3) shorter than expected life cycle from key games; and 4) lower margins from decline in self-developed games’ rev mix. We forecast iDS’ adj. NP to reach RMB510mn/230mn in FY19E/2H19E, and adj. NPM to reach 17.9%/16.2% respectively. We maintain BUY for iDS, and rolled forward our P/E valuation multiple to FY20E to derive our TP at HKD6.2. Our TP is based on 11x FY20E P/E. iDS is currently trading at 9.4x FY20E P/E.

全文: CMS(HK) Research - iDreamSky Technology (1119 HK) - 2H19 preview every cloud has a silver lining [BUY] ~ Matt MA,Leo LIU,Calvin NG.pdf
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