Tencent Teams Up with Top Mobile Game Developer, Buy

Transcription

1 (00992 HK) GTJA Research 国泰君安研究 Company Report: Tencent (00700 HK) Ricky Lai 黎柏坚 公司报告 : 腾讯控股 (00700 HK) ricky.lai@gtjas.com.hk Tencent Teams Up with Top Mobile Game Developer, Buy 与顶级手游开发商合作, 买入 Rating: Buy Maintained A recently acquired minority interest in Supercell to leverage its mobile game advantage in the overseas and domestic market. Supercell is highly ranked in the global mobile game market, the acquisition can enhance Tencent s mobile development strategy and consolidate its leading position in China s game market. Revise up FY16-FY18 online game revenue by 1.6%/ 1.8%/ 2.0%, respectively, thanks to an improvement of its mobile games rankings in China and the synergy effect with the investment in Supercell. Maintain the investment rating of Buy and revise up the TP from HK$ to HK$ We revise up FY16-FY18 EPS by 2.0%/ 2.4%/ 2.7%, respectively. The new TP implies 40.4x FY16 PER, 31.8x FY17 PER, 25.8x FY18 PER and 1.32x FY15-FY18 PEG. 收购 Supercell 少数股东权益, 以利用其手机游戏的优势在海外和国内市场发展 Supercell 在全球手机游戏排行榜排名位居前列, 这将增强腾讯的移动发展战略, 并巩固其在中国游 戏市场的领先地位 分别上调 年游戏收入 1.6%/ 2.8%/ 2.0%, 是由于公司在中国的手机游戏排名有 所提高, 并投资 Supercell 而产生协同效应 维持公司的投资评级为 买入 及目标价从 港元上调至 港元 我们分别上 调 年每股盈利 2.0%/ 2.4%/ 2.7% 目标价相当于 40.4 倍 2016 年市盈率 31.8 倍 2017 年市盈率 25.8 倍 2018 年市盈率及 年 PEG 为 1.32 倍 评级 : 买入 ( 维持 ) 6-18m TP 目标价 : HK$ Revised from 原目标价 : HK$ Share price 股价 : Stock performance 股价表现 (10.0) (20.0) (30.0) % of return HK$ (40.0) Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Change in Share Price 股价变动 HSI Index 1 M 1 个月 Tencent 3 M 3 个月 1 Y 1 年 Abs. % 绝对变动 % (0.2) Rel. % to HS index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 2014A 78,932 23, A 102,863 28, F 140,829 41, F 178,149 52, F 210,619 65, Shares in issue (m) 总股数 (m) 9,407.7 Major shareholder 大股东 Naspers Ltd 34.0% Market cap. (HK$ m) 市值 (HK$ m) 1,607,775.9 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 17,821.3 FY16 Net gearing (%) FY16 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY15-18 PEG (x) 1.1 Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 8

2 An acquired minority stake in top mobile game developer Supercell. In June 2016, Tencent announced the formation of a consortium for acquiring an 84.3% stake in Supercell from Softbank with a consideration of US$ 8.6 billion, valuing Supercell to around US$ 10.2 billion and representing 13.0x FY15 PER and 1.1x FY15 PBR. The acquisition price is fair in our view owing to Supercell s powerful game developing ability and popular mobile game titles. Tencent is in the discussion stages with potential co-investors for joining the consortium and Tencent expects to maintain a 50% voting interest in the consortium through financial instruments. Tencent is expected to spend US$ 3 billion to US$ 4 billion for acquiring less than 50% of Supercell s overall equity stake and other investors in the consortium will acquire the remaining stake in Supercell. The financial reporting of Supercell will not be consolidated into Tencent s financial statement given that the stake holding is less than 50%. This acquisition strategy is consistent with Tencent s track record for purchasing minority stakes in third party game developers in the hope to maintain their operational independence and to preserve their development strategy. Supercell recorded a 62.6% increment in profit after taxation in FY15, thanks to its well received game titles. Supercell is a Finnish company and operates 4 mobile game titles including Clash of Clans, Clash Royale, Boom Beach and Hay Day. Tencent can improve its game developing ability and launch more exclusive popular mobile game titles after the transaction. Tencent will introduce these popular game titles to WeChat exclusively in China and overseas to boost their instant messaging user base. In July 2016, Tencent is expected to introduce the first Supercell mobile game, Clash Royale, to Wexin, which can speed up the Company s online game monetization. Tencent has formed strategic alliances with many international game developers through investments and agreements which help to diversify the Company s game genres and titles. We revise up FY16-FY18 online game revenue forecasts by 1.6%/ 1.8%/ 2.0%, respectively, on the back of improving rankings of its mobile game titles and benefit from the synergy effect with the introduction of Supercell game titles to Wexin. Tencent has two mobile game titles ranked within the top 3 in the China gross game market. Cross Fire ( 穿越火线 ), Legend of the Swordman Mobile ( 剑侠情缘手游 ) and King of Glory ( 王者荣耀 ) ranked second, fourth and ninth place in the mobile games rankings in June 2016, respectively. Owing to Tecent s minority stake ownership in Supercell, Tencent should benefit from revenue sharing if Supercell s game titles are distributed through its mobile platforms (Wexin, QQ and Ying Yong Bao), achieves equity method gain and synergy effects occur. By partnering with the global mobile game company, more international game companies will be more willing to co-operate with Tencent and publish their game titles on Tencent s platform. We revise up FY16-FY18 game revenue forecasts by 1.6%/ 1.8%/ 2.0%, respectively. Table-1: China s ios Top 10 Online Grossing Games Chart in June 2016 Ranking Grossing Games Developers 1 Fantasy Westward Journey ( 梦幻西游 ) Netease 2 Cross Fire ( 穿越火线 ) Tencent 3 Yi Tian Tu Long Ji ( 倚天屠龙记 ) Chongqing MeiQi Interactive Tech Comp 4 Legend of the Swordman Mobile ( 剑侠情缘手游 ) Tencent 5 Tanke ( 全民坦克之战 ) DreamSky 6 六扇门 ( 腾讯独播官方正版授权 ) Shanghai GreenShore Network Tech 7 Westward Journey ( 大话西游 ) Netease 8 Ghost Blows 3D( 鬼吹灯 3D) Sendon 9 King of Glory ( 王者荣耀 ) Tencent 10 Black Swordsman ( 黑衣剑士 ) Beijing Chuxun Technology Co., Ltd. Source: App Annie. See the last page for disclaimer Page 2 of 8

3 Figure-1: Tencent s Mobile Game Revenue and YoY Growth Figure-2: Tencent s PC Game Revenue and YoY Growth RMB (Billion) Mobile game revenue (LHS) YoY growth (RHS) % % 200% % % % 50% 24.0% % 0 0% FY14A FY15A FY16F FY17F FY18F Source: the Company, Guotai Junan International. RMB (Billion) PC game revenue (LHS) YoY growth (RHS) % % -3.3% -4.0% 20-4% -5.0% % -6% 0-8% FY14A FY15A FY16F FY17F FY18F Source: the Company, Guotai Junan International. Table-2: Tencent s PC and Mobile Games Pipeline in FY16 Mobile Game Titles PC Game Titles Carrot Fantasy 3 ( 保卫萝卜 3) Master X Master ( 全职大师 ) Stone Age ( 石器时代 ) Rising Fire ( 火源计划 ) DnF Mobile ( 地下城与勇士 ) Orcs Must Die ( 兽人必须死 ) Infinity Blade Saga ( 无尽之剑 - 命运 ) War Thunder ( 战争雷霆 ) Puzzle and Dragon ( 天天智龙 ) Metro Conflict: Presto ( 重火力 ) Legend of the Swordman Mobile ( 剑侠情缘手游 ) Three Kingdoms ( 霸三国 ) Contra Mobile ( 魂斗罗 ) HON ( 超神英雄 ) Ensemble Star ( 偶像梦幻祭 ) Core Fight ( 炫斗之王 ) Legacy TLBB 3D ( 新天龙八部手机版 ) MX ( 勇者大冒险 ) ZhengTu ( 征途手机版 ) Lost Saga ( 王牌对决 ) Iron Knight ( 刀锋铁骑 ) Saura ( 天刹 ) Maple Story 2 ( 冒险岛 2) Source: the Company. Path of Exile ( 流放之路 ) Profit Revision FY16-FY18 EPS is revised up by 2.0%/ 2.4%/ 2.7%, respectively. We revise up FY16-FY18 online game revenue forecasts by 1.6%/ 1.8%/ 2.0%, respectively, due to the investment in Supercell which improves its game revenue growth through the introduction of Supercell s mobile game titles to its mobile platforms (Weixin, QQ and Ying Yong Bao). FY16-FY18 EPS is revised up by 2.0%/ 2.4%/ 2.7%, respectively. See the last page for disclaimer Page 3 of 8

4 Table-3: Financial Estimation Revisions OLD RMB (Million) 2016F 2017F 2018F 2016F NEW 2017F 2018F 2016F CHANGE 2017F Total revenue 138, , , , , , % 1.6% 1.8% -VAS revenue 102, , , , , , % 1.8% 2.0% -Online advertising revenue 29,696 42,168 55,240 29,696 42,168 55, % 0.0% 0.0% -Others revenue 7,325 10,255 13,229 7,325 10,255 13, % 0.0% 0.0% Net profit 40,456 51,462 63,404 41,265 52,697 65, % 2.4% 2.7% EPS (RMB) % 2.4% 2.7% Source: Guotai Junan International. 2018F Valuation Maintain the investment rating of Buy and revise up the TP from HK$ HK$ Tencent can consolidate its leading position in China s online mobile game market through the investment in Global mobile game developer Supercell with the introduction of Supercell s mobile games to Wexin and improve its brand reputation in the global market. We revise up the Company s TP to HK$ , which implies 40.4x FY16 PER, 31.8x FY17 PER, 25.8x FY18 PER and 1.32x FY15-FY18 PEG. Figure-3: Tencent s PE Graph SD 45 Average 40-1 SD 35 Source: Bloomberg. 30 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 See the last page for disclaimer Page 4 of 8

5 Table-4: Peers Comparison Market PER (x) PBR (x) ROE(%) ROA(%) Company Ticker Currency Price Cap 16F 17F 18F 16F 17F 18F 16F 16F US Online Game Companies Changyou CYOU US USD Electronic Arts Inc EA US USD , Activision Blizzard Inc ATVI US USD , Netease NTES US USD , Simple Average Weighted Average HK Online Game Companies Tencent HK HKD ,607, Boyaa Interactive Int HK HKD , Forgame Holdings HK HKD , n.a n.a IGG HK HKD , Netdragon HK HKD ,964 n.a Simple Average Weighted Average Advertising Companies Sohu.Com Inc SOHU US USD ,386 n.a. n.a. n.a n.a. n.a. Weibo WB US USD , Cheetah Mobile CMCM US USD , com WUBA US USD ,252 n.a n.a. n.a. Soufun SFUN US USD ,324 n.a n.a. n.a. Phoenix New Media FENG US USD Sina SINA US USD , Facebook FB US USD , Simple Average Weighted Average E-commerce Companies Alibaba BABA US USD , VIPSHOP VIPS US USD , E-commerce China-Spon DANG US USD n.a. n.a n.a. n.a. n.a. n.a. n.a. Jumei JUMEI US USD EBay EBAY US USD , JD.com JD US USD ,011 n.a n.a. n.a. AMAZON MZN US USD , Gome Electrical Appliances HK HKD , Simple Average Weighted Average Search Engine Companies Alphabet Inc GOOG US USD , Yahoo! Inc YHOO US USD , Baidu Inc - Spon Adr BIDU US USD , Simple Average Weighted Average Overall Average Overall Weighted Average Source: Bloomberg. See the last page for disclaimer Page 5 of 8

6 Table-5: Technical Terms Glossary Abbreviation Definitions 定义 IVAS Internet Value-Added Services 互联网増値服务 MVAS Mobile and Telecommunication Value-Added Services 移动及电讯増値服务 VAS Value-Added Services 増値服务 LOL League of Legends 英雄联盟 DNF Dungeon and Fighter 地下城与勇士 ACU Average Concurrent User Accounts 平均同时在线用戸数 PCU Peak Concurrent User Accounts 最高同时在线用戸数 TAC Traffic Acquisition Cost 流量获得成本 ACG Advanced Casual Game 高级休闲游戏 MCG Mini Casual Game 小型休闲游戏 ARPU Average Revenue Per User 平均每月用户收入 DAU Daily Active User Accounts 日活跃用户数 FPS First Person Shooting 第一人称射击游戏 MMO Racing Massive Multiplayer Online Racing 大型多人在线赛车游戏 MMOFPS Massive Multiplayer Online First-Person Shoot 大型多人在线第一人称射击游戏 MMOG Massive Multiplayer Online Game 大型多人在线音乐游戏 MM ORGS Massive Multiplayer Online Role-Playing Game 大型多人在线角色扮演游戏 MMORTS Massive Multiplayer Online Real-Time Strategy 大型多人在线实时战略游戏 SNS Social Network Site 社交网站 Source: the Company. See the last page for disclaimer Page 6 of 8

7 Financial Statements and Ratios Income Statement Balance Sheet Year end Dec, RMB m 2014A 2015A 2016F 2017F 2018F Year end Dec, RMB m 2014A 2015A 2016F 2017F 2018F Total Revenue 78, , , , ,619 Fixed assets 7,918 9,973 11,434 18,903 18,869 VAS 63,310 80, , , ,149 Intangible assets 9,304 13,439 13,842 14,811 16,885 Online advertising 8,308 17,468 29,696 42,168 55,240 Investment in JCE & associates 51,194 60,715 63,557 69,972 93,839 Others 7,314 4,726 7,325 10,255 13,229 Others 27,429 67,313 91, , ,605 Cost of revenues (30,873) (41,631) (58,303) (74,823) (89,092) Total non-current assets 95, , , , ,197 Gross profit 48,059 61,232 82, , ,527 Accounts receivable 4,588 7,061 8,191 8,928 9,910 Interest Income 1,676 2,327 3,371 2,932 3,277 Other receivables 7,804 11,397 12,423 13,541 15,166 Other gains, net 2,759 1,886 2,075 2,282 2,373 Cash and cash equivalents 42,713 43,438 36,772 29,552 23,087 S&M (7,797) (7,993) (10,083) (11,045) (11,598) Others 20,216 93, , , ,885 G&A (14,155) (16,825) (21,124) (25,297) (28,434) Total current assets 75, , , , ,048 Operating profit 30,542 40,627 56,764 72,198 87,146 Total assets 171, , , , ,245 Finance cost, net (1,182) (1,618) (2,062) (2,863) (2,178) Note payable 25,028 37,092 38,947 44,789 55,090 Share of associate / JC (347) (2,793) (3,128) (3,441) (3,544) Long term borrowings 5,507 12,922 15,506 26,361 44,813 Profit before income tax 29,013 36,216 51,574 65,894 81,424 Others 8,472 10,298 12,418 14,289 16,028 Income tax (5,125) (7,108) (10,122) (12,933) (15,981) Total non-current liabilities 39,007 60,312 66,871 85, ,932 Minority interests (78) (302) (187) (265) (327) Net profit 23,810 28,806 41,265 52,697 65,116 Accounts payable 8,683 15,700 16,485 17,309 18,175 Basic EPS (RMB) Other payables and accruals 19,123 70,199 77,219 84,941 91,736 Short term borrowings 3,215 11,429 14,286 24,287 38,859 Cash Flow Statement Note payable 1,834 3,886 4,484 5,381 6,834 Year end Dec, RMB m 2014A 2015A 2016F 2017F 2018F Others 17, , , , ,646.4 Profit before taxation 29,013 36,216 51,574 65,894 81,424 Total current liabilities 50, , , , ,250 Depreciation & Amortization of intangible assets 4,818 6,674 7,176 7,717 8,298 Total liabilities 89, , , , ,182 Changes in working capital 5,556 6,389 56,819 5, Income tax paid (4,703) (5,047) (7,429) (12,426) (13,711) Shareholders' equity 80, , , , ,596 Others (1,973) 1,199 (2,183) 2,231 (8,782) Share capital & Share premium 5,131 12,167 13,140 14,192 15,327 Net cash generated from operating activities 32,711 45, ,958 68,760 67,622 Shares held for share award scheme (1,309) (1,817) (1,999) (2,199) (2,418) Other reserves 2,129 9,673 10,157 10,664 11,198 CAPEX (4,296) (5,440) (4,842) (4,309) (3,835) Retained earnings 74, , , , ,490 Financial assets purchases (4,622) (13,001) (13,521) (14,062) (14,624) MI 2,111 2,065 2,401 2,877 3,466 Associates & JV investments change (31,931) (11,923) (45,400) (10,820) (8,656) Total equity 82, , , , ,063 Financial for sale investments change (4,622) (13,001) (13,521) (14,062) (14,624) BPS (RMB) Others 17,083 (20,240) (36,339) (52,609) (69,254) Net cash used in investing activities (28,388) (63,605) (113,622) (95,862) (110,994) Payments for repurchase of shares (590) (652) (717) (789) (868) Dividends paid to the Company's shareholders (1,761) (2,640) (2,640) (3,782) (4,254) Financial Ratios Change in borrowings 20,619 28,565 5,442 20,855 33,025 Year end Dec 2014A 2015A 2016F 2017F 2018F Others 82 (6,745) (1,472) 3,196 8,587 Profitability Net cash generated from financing activities 18,350 18, ,481 36,490 Gross margin (%) Operating margin (%) Net increase in cash and equivalents 22, (7,052) (7,622) (6,882) Net margin (%) Cash at beginning of year 20,228 42,713 43,438 36,772 29,552 ROE (%) Exchange losses (188) ROA (%) Cash at end of year 42,713 43,438 36,772 29,552 23,087 Net gearing (%) Net cash Net cash Net cash Net cash Net cash Source: the Company, Guotai Junan International. See the last page for disclaimer Page 7 of 8

8 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI Holdings Group Limited (00198 HK), China All Access (Holdings) Limited (00633 HK), Guotai Junan International Holdings Limited (01788 HK), Binhai Investment Company Limited (02886 HK) and Link Holdings Limited (08237 HK), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 8 of 8