Tian Ge Interactive (1980 HK)

Transcription

1 Equity Research Tech, Media & Telecom 22 Sep 2014 Tian Ge Interactive (1980 HK) Live social platform at a discount We recently communicated with Tian Ge (TG) Interactive management: Largest many-to-many live social platform; strong music exposure: TG is the largest live social video platform in China in terms of total user spending at 33.9% share in It operates 8 many-to-many communities (including 9158 Video Community and Sina Show) and 1 one-to-many community. Music is the most popular room genre that contributes 70%+ income. For many-to-many, viewers can queue up for air time to sing or perform in front of peers in a real-time room. To show-off, to enhance status, or to make friends, participants buy and consume virtual items that TG receives 30%-40% spending as revenue. Meeting takeaway Share price: HK$5.05 Bloomberg Ticker: 1980 HK Reuters: 1980.HK Core existing business to recognize 20%-30% natural annual growth: As of 2013A, 59% TG income was generated from users in tier 3 and tier 4 cities in China. 14k top spenders out of 439k annual paying users spent more than RMB87k-131k a year, contributing 65% 2013A total revenue. We believe such user-to-user interaction and spending habit make it inefficient for TG itself to boost growth by aggressively adding hosts & channels. Nevertheless, with strong technology infrastructure, we believe TG growth can benchmark market rate. iresearch estimated China live social video market size to expand at 37% CAGR 2013A-17E. Exploring new initiative to leverage on existing platform & user base: Going forward, TG is exploring new initiatives to enrich e-consumption scenarios offered. In short-term, TG is testing its mobile game with embedded video steaming features. Host in online virtual chat room could appear in gameplay to enable interactive video functions. In medium-term, TG is working with karaoke outlets to build an onlineoffline integrated model to provide unique user experience. As for longer-term, TG targets additional vertical applications such as mobile medical interaction platforms and mobile e-ecommerce platforms. Valuation discount could be reversed eventually, in our view: Partly due to nature of user participations, TG has smaller portion of mobile MAU at 7% and largely relies on PC. Mobile segment contribution could continue to be small at least in short-term. Growth rate also looks smaller compared to certain peers. However, we believe existing core music channels provide strong cash flow and reasonable growth at stable margin. Based on Bloomberg data, TG is to recognize RMB259.5m (+28%) and RMB393.5m (+52%) adjusted net profit for 14E/15E, representing 18.2x and 15.1x P/E. At this valuation we believe investors do not give full credit to TG business; re-rating is possible. Kevin Mak, CFA Analyst kevin.mak@dfzq.com.hk

2 Table 1. Profit and loss summary Year-end Dec (RMBm) 2011A 2012A 2013A 1H 13A 2H 13A 1H 14A Revenue Cost of revenue (48.2) (52.3) (68.1) (30.2) (37.9) (54.1) Gross profit Selling and marketing expenses (125.4) (169.5) (166.7) (77.0) (89.7) (94.8) Administrative expenses (38.0) (44.4) (53.3) (21.7) (31.6) (69.6) Research and development expenses (39.4) (56.7) (69.1) (31.6) (37.5) (34.0) EBIT Depreciation (7.6) (9.6) (11.2) (5.7) (5.5) (5.7) Amortization (1.5) (1.7) (1.6) (0.9) (0.7) (1.7) EBITDA Investment interest Government grants Other net gains/losses (0.3) (0.3) (0.2) (0.1) (0.0) (1.9) Finance income Finance costs (0.1) (7.2) (36.7) (35.8) (0.9) (1.8) Fair value loss of convertibles (216.6) (172.9) (283.3) (185.9) (97.4) (260.5) EBT (75.3) (15.3) (56.4) (74.9) 18.4 (153.5) Income tax expense (5.3) (11.9) (36.2) (17.1) (19.1) (20.7) Total profit (80.6) (27.2) (92.6) (91.9) (0.7) (174.2) Net profit (80.6) (27.2) (92.6) (91.9) (0.7) (174.0) MI - - (0.0) - (0.0) (0.2) Share-based compensation expenses (3.9) (5.5) (5.6) (3.0) (2.6) (13.5) Fair value loss of convertibles (216.6) (172.9) (283.3) (185.9) (97.4) (260.5) IPO expenses (7.0) 0.0 (7.0) (31.9) Adjusted net profit Total number of shares outstanding 1, , , , , ,262.7 Non-adjusted fully diluted EPS (RMB) (0.0638) (0.0216) (0.0733) (0.0728) (0.0005) (0.1378) Table 2. Revenue breakdown Yr-end Dec (RMBm) 2011A 2012A 2013A 1H 2013A 2H 2013A 1H 2014A Live social video platform Video Community Sina Show Sina Showcase Other communities # Mobile and online games Others Total revenue Source: Orient Securities (# Including Duoduo Games, Happy88.com, 99cu.com, Tiao58.com, Paopao8.cn and Tangguo100.com) 2 / 6

3 Table 3. Conventional users statistics Year-end Dec (RMBm) 2011A 2012A 2013A 1H 14A Number of rooms 15,000 19,000 26,000 29,449 Number of hosts 17,400 22,400 34,800 38,448 Registered users (m) Monthly active users (MAU) (k) 7,458 7,980 10,819 13, Video Community 3,812 4,151 5,611 - Sina Show 1,883 2,107 3,186 - Sina Showcase Other communities # 1,565 1,449 1,681 - Monthly paying users (MPU) (k) Video Community Sina Show Sina Showcase Other communities # Mobile MAU / MAU % MAU / registered users 9.6% 5.5% 5.3% - MPU / MAU 2.6% 2.6% 2.5% 2.5% MPU / MAU % 1.7% 1.6% - MPU / MAU - Sina Show 3.3% 3.9% 3.5% - Table 4. Per user revenue and user group breakdown Year-end Dec (RMBm) 2011A 2012A 2013A 1H 14A Average revenue per MPU (RMB) Video Community Sina Show Sina Showcase Other communities # Average revenue per annual paying user * (RMB) 1,013 1,092 1, User group <RMB1,200 (RMB) User group RMB1,200 - RMB6,000 (RMB) 2,668 2,685 2, User group >RMB6,000 (RMB) 25,955 26,276 26,199 - Annual paying users (k) * User group <RMB1,200 (RMB) User group RMB1,200 - RMB6,000 (RMB) User group >RMB6,000 (RMB) Live social video platform revenue User group <RMB1,200 contribution User group RMB1,200 - RMB6,000 contribution User group >RMB6,000 contribution Source: Orient Securities # Including Duoduo Games, Happy88.com, 99cu.com, Tiao58.com, Paopao8.cn and Tangguo100.com * Defined as users who have paid for products or services on Tiange platform for at least twice in a given year 3 / 6

4 Table 5. Balance sheet summary Year-end Dec (RMBm) 2011A 2012A 2013A 1H 14A Non-current assets Property and equipment Intangible assets Investment in associates Available-for-sale financial assets Prepayments and other receivables Deferred income tax assets Restricted cash Current assets Trade receivables Prepayments and other receivables Available-for-sale financial assets Term deposits 3 months Bank balance and cash Restricted cash Non-current liabilities Borrowings Convertible redeemable preferred shares Redeemable ordinary shares Deferred income tax liabilities Current liabilities Trade payables Other payables and accruals Income tax liabilities Dividend payable Borrowings Customer advance and deferred revenue Total equity (135.4) 72.4 (83.7) (250.5) Share capital Shares held for RSU scheme (0.0) Reserves Accumulated deficits (172.3) (200.3) (294.0) (468.4) Non-controlling interests Table 6. Shareholders Shareholding Founder / CEO Fu Zhengjun, and Fu Yanchang 26.92% Sina HK 23.76% IDG 15.84% RSU 5.98% Others and public 27.50% Total % Source: Orient Securities 4 / 6

5 Analyst Certification I, Kevin Mak (Mak Tsz Hang), being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that: (1) all of the views expressed in this report accurately reflect my personal view about the subject company(ies) and its (or their) securities; (2) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report, or our Investment Banking Department; (3) I am not, directly or indirectly, supervised by or reporting to our Investment Banking Department; (4) the subject company(ies) do(es) not fall into the restriction of the quiet period as defined in paragraph 16.5(g) of SFC Code of Conduct; (5) I and my associates do not deal in or trade in the stock(s) covered in this report within 30 calendar days prior to the date of issue of the report; (6) I and my associates do not serve as an officer(s) of the listed company(ies) covered in this report; and (7) I and my associates have no financial interests in relation to the listed company (ies) covered in this report. Meanings of Orient Securities Ratings Buy Describes stocks that we expect to provide a total return of >10% within a 12-month period. Accumulate Describes stocks that we expect to provide a total return of >0% within a 12-month period. Hold Describes stocks that we expect to provide a total return of between -20% and +20% within a 12-month period. Sell Describes stocks that we expect to provide a total return of <0% within a 12-month period. Disclosure & Disclaimer Orient Securities (Hong Kong) Limited does and seeks to do business with the company or companies covered in this report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Orient Securities (Hong Kong) Limited and its affiliates, officers, directors, and employees may from time to time have long or short positions in securities, warrants, futures, options, derivatives or other financial instruments referred to in this report. In no event will Orient Securities (Hong Kong) Limited or any other member of Orient Securities (Hong Kong) Limited be liable or responsible for loss of any kind, whether direct, indirect, consequential or incidental, resulting from the act or omission of any third party occurring in reliance upon the contents of this report. Any information provided in this research report is for information purpose only and have no regards to the investment objectives, financial situation or risk tolerance level of any specific recipient and does not constitute any solicitation or any offer to buy or sell any securities or any other financial instruments. Before entering into any investment contract, individual should exercise judgment or seek for professional advice when necessary. Orient Securities (Hong Kong) Limited may not execute transactions for individual(s) in the securities/instruments mentioned. 5 / 6

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