Company Research Non-rated note Back in the game IGG s FY16 net profit jumped stunningly at 74%yoy to USD72m, on the launch of Lords Mobile (LM) from Mar-2016. We see LM sales will likely overwhelm IGG s existing core game sales, Castle Clash, to become the company s driver. On Bloomberg consensus, IGG currently trades at 12.4x F P/E with a below-sector s PEG at 0.26 (47.6% EPS CAGR FY16-19F) vs. closest peer s 0.61x PEG. Global mobile game developer Found in 2006 in China, formerly known as Fuzhou Skyunion Digital, IGG has transformed itself from a PC-based online game developer to a mobile-based P2P game publisher with total monthly gross billing attained USD49m. Compared with a modest FY15, the company s net profit jumped 74%yoy to USD72m, on good revenue growth at 59%yoy, from its game release in Mar 2016 - Lords Mobile (LM). Lords Mobile already shone in 2016 LM was undeniably recognized as IGG s catalyst during FY16, versus group s other titles, namely Castle Clash (CC) and Clash of Lords (CoL). According to App Annie, in the past six months, LM s gross billing was ranked at top 10 strategy game in ios App Store and Google Play US. During the analyst briefing in Mar, the company presented that LM s monthly gross billing has risen to over USD36m in Mar 2017 from USD0.6m at the time it was lunched in Mar 2016. Therefore, LM s FY16 sales has hit USD124m, making up 38.6% of IGG s revenue. 2017 still with shiny Lord Mobile With the assumption of (1) LM s gross billing per MAU to be capped by end of year on MAU continual growth; (2) CC s and CoL s gross billing to drop at an average USD10m/2.5m per month and (3) the next block-buster game due to be released, we expect IGG will continue to rely on LM s success to drive growth during 2017. Moreover, MAU is estimated to hit over 7m by end of 2017 (Dec-2016: 4m). Current PEG below sector On Bloomberg consensus, IGG currently trades at 12.4x F P/E with an EPS CAGR (FY16-19F) of 47.6% (0.26x PEG), while HK sector median stands at 13.0x P/E but with higher PEG at 0.61x. Key catalyst: stronger and longer than expected LM s sales momentum. Key risk: Highly relying on LM s sales growth, CC and CoL s faster-than-expected decline in gross billing. Figure 1: Financial Summary Year to Dec 31 (USDm) FY12A FY13A FY14A FY15A FY16A Revenue 43 88 205 203 322 Operating Profit 7 22 69 50 79 Reported Profit (13) 7 66 41 73 Underlying Profit 7 21 66 41 73 Underlying EPS (USD) 0.013 0.021 0.046 0.029 0.052 Underlying EPS growth (%) 146 60.1 115 (37.3) 80.2 BVPS (USD) (0.10) 0.14 0.13 0.13 0.14 P/E 121.9 76.2 35.4 56.4 31.3 P/B (15.7) 11.8 12.6 12.3 11.6 ROE (%) (14.6) 52.8 41.2 22.0 37.6 Singapore TMT Technology 17 May 2017 Non rated Target price Last price (17 May 17) N/A HKD12.74 Upside/downside (%) HSI 25293.63 Mkt cap (HKDb/USDb) 17.2/2.2 52 week range (HKD) 3.20-12.90 Avg trading volume daily (USDm) 42.72 Free float (%) 57.3 Performance HKD 12.00 10.00 8.00 6.00 4.00 2.00 May-16 Price(LHS) Performance 1M 3M 12M Absolute (%) 22.0 118.2 280.3 Absolute (USD, %) 21.8 117.4 279.0 Relative to HSI (%) 17.8 112.9 254.6 Company background IGG Inc. is an online games developer and operator. The Company offers multi-language browser games, client-based games and mobile games to players globally. IGG s major shareholders currently include the company management (Mr. Zongjian Cai, Mr. Yuan Xu, Mr. Hong Zhang) (19.94%), and Mr Yuan Chi (founder, re-designated as a non-executive Director) (11.39%). On May 15 2017, the board has appointed KPMG as new auditor (previously with Ernst & Young). Raymond Lam SFC CE No.: BGL264 +852 2899 3141 raymond.lam@guosen.com.hk Jan-17 Rel. to HSI(RHS) 330% 280% 230% 180% 130% 80% See the last page of this report for important disclosures 1
Figure 2 Profit by year USD in m 250 200 Figure 3 Revenue by game title USD in m 250 200 150 150 100 100 50 50 0 FY11 FY12 FY13 FY14 FY15 FY16-50 Gross profit Operating profit Profit for the year 0 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 Others Clash of Lords series Lords Mobile Castle Clash Figure 4 Peers comparison (as May 17 2017), Guosen Securities (HK) Research 3-mth avg t/o (US$m) PER FY16 PER PER EPS YoY% EPS YoY% Div yld (%) Div yld (%) Company Ticker Price Mkt cap (US$m) 3-Yr EPS Cagr (%) PEG HK peers median 27.9 13.0 10.9 47.4 27.5 27.0 0.61 1.2 2.1 2.4 2.2 11.0 IGG INC 799 HK 12.8 2,221 41.7 30.5 12.4 10.9 152.9 13.6 47.6 0.26 3.5 4.8 6.7 5.0 37.6 OURGAME INTERNAT 6899 HK 2.5 253 0.7 11.7 8.0 6.8 53.5 18.1 23.1 0.35 N/A 3.6 1.3 1.1 13.2 TIANGE 1980 HK 5.8 964 8.6 27.9 19.8 15.3 47.4 29.1 32.5 0.61 1.7 2.1 2.4 2.2 9.6 BOYAA INTERACTIV 434 HK 3.7 365 2.2 10.6 8.3 7.9 33.4 5.1 13.3 0.63 0.00 0.00 1.0 0.9 11.0 FEIYU 1022 HK 1.1 220 0.4 N/A 13.0 7.0 N/A 86.7 N/A N/A 2.88 4.11 1.4 1.2 6.0 TENCENT 700 HK 258.8 314,947 532.3 52.9 36.5 28.7 44.8 27.5 30.9 1.18 0.30 0.39 9.5 7.4 27.9 KINGSOFT CORP 3888 HK 22.5 3,771 28.6 N/A 18.8 14.3 N/A 31.6-305.4 N/A 0.79 0.86 2.9 2.4-3.4 China peers median 71.9 55.2 44.7 42.9 22.7 N/A N/A N/A N/A 7.8 6.5 15.6 BEIJING KUNLUN-A 300418 CH 23.9 4,021 30.7 50.9 29.9 24.6 70.2 21.3 N/A N/A N/A N/A 6.6 5.1 18.2 SHENZHEN SHENG-A 300518 CH 113.5 1,537 N/A 93.0 80.5 64.8 15.6 24.1 N/A N/A N/A N/A 8.9 7.8 13.0 P/B P/B ROE FY16 (%) Guosen Securities (HK) 2
Figure 5 IGG income statement USD in mn FY12 FY13 FY14 FY15 FY16 Castle Clash 0 29 127 121 136 Lords Mobile 0 0 0 0 124 Clash of Lords series 0 1 25 35 33 Others 43 58 53 47 29 REVENUE 43 88 205 203 322 Cost of sales -10-22 -59-62 -103 Gross profit 33 66 146 141 219 Selling and distribution expenses -12-23 -43-42 -80 Administrative expenses -7-11 -17-22 -24 Research and development costs -6-9 -17-27 -36 Operating profit 7 22 69 50 79 Other income and gains 0 1 4 1 2 Fair value loss of redeemable convertible preferred shares -21-14 Other expenses 0 0-1 -7-3 Share of results of an associate and a joint venture 0 0 0 0-1 PROFIT/(LOSS) BEFORE TAX -13 8 72 45 77 Income tax expense 0-1 -5-4 -6 Attributable to: Owners of the parent -13 7 66 41 73 Non-controlling interests 0 0 0 0-1 PROFIT FOR THE YEAR -13 7 66 41 72 Basic EPS (US$) -0.0254 0.0078 0.0488 0.0300 0.0537 Diluted EPS (US$) -0.0254 0.0071 0.0462 0.0290 0.0522 yoy REVENUE 39% 104% 133% -1% 59% Gross profit 41% 100% 122% -4% 56% Selling and distribution expenses 24% 93% 85% -3% 92% Administrative expenses 36% 53% 54% 31% 8% Research and development costs 19% 47% 84% 57% 33% Operating profit 137% 205% 209% -27% 58% Profit for the year N/A N/A 856% -38% 74% Ratio Gross profit 76% 75% 71% 69% 68% Selling and distribution expenses 28% 26% 21% 21% 25% Administrative expenses 16% 12% 8% 11% 7% Research and development costs 15% 11% 8% 13% 11% Operating profit 17% 25% 34% 25% 25% PROFIT/(LOSS) BEFORE TAX N/A 9% 35% 22% 24% Profit for the year N/A 8% 32% 20% 22% Guosen Securities (HK) 3
Figure 6 Revenue by half year 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 Asia 7 19 27 32 26 26 35 70 Europe 7 13 23 33 32 31 41 61 North America 12 22 37 42 40 35 43 56 Others 3 5 6 6 5 7 7 9 Total 29 59 92 113 104 99 126 196 Castle Clash - 29 60 67 59 62 71 65 Lords Mobile - - - - - - 18 107 Clash of Lords series - 1 5 19 18 17 20 13 Others 29 29 27 26 21 26 9 9 Total 29 59 92 113 104 113 126 196 REVENUE 29 59 92 113 104 99 126 196 Cost of sales (7) (15) (25) (34) (32) (30) (37) (66) Gross profit 22 44 67 79 72 69 89 130 Selling and distribution expenses (6) (17) (19) (24) (22) (19) (34) (46) Administrative expenses (4) (7) (6) (10) (10) (11) (11) (12) Research and development costs (4) (5) (7) (10) (13) (14) (16) (20) Operating profit 7 15 34 35 26 24 27 52 Other income and gains 0 1 1 3 1 0 1 1 Share of results of associates - - - - (0) 0 (0) 0 Fair value loss of redeemable convertible preferred shares (14) - - - - - - - Other expenses (0) (0) (0) (1) (1) (6) (0) (2) Share of results of an associate and a joint venture - - - - - - - (1) PROFIT/(LOSS) BEFORE TAX (7) 15 35 36 27 18 27 50 Income tax expense (0) (1) (2) (3) (2) (2) (2) (4) Attributable to: Owners of the parent (7) 14 33 33 25 17 26 47 Non-controlling interests - - - - 0 (0) (1) 0 PROFIT FOR THE YEAR (7) 14 33 33 25 16 25 47 Guosen Securities (HK) 4
Summary financial statements(year to Dec 31) Profit & Loss (USDm) FY12A FY13A FY14A FY15A FY16A Financial Ratios FY12A FY13A FY14A FY15A FY16A Revenue 43 88 205 203 322 Gross profit margin (%) 76.0 74.7 71.2 69.4 68.0 Revenue growth (%) 38.8 104 133 (1.0) 59.0 Operating profit margin (%) 16.9 25.3 33.6 24.7 24.6 Cost of sales (10) (22) (59) (62) (103) Underlying profit margin (%) 16.6 24.0 32.4 20.5 22.5 Gross profit 33 66 146 141 219 Net debt/equity (%) 27.1 (99.8) (97.0) (97.4) (93.9) Other income/(expense) 0 0 0 0 0 Net debt/total assets (%) (70.3) (89.5) (83.2) (84.3) (75.6) Operating expenses (25) (43) (77) (90) (140) Current ratio (%) 25.1 971 683 715 474 Operating profit 7 22 69 50 79 Dividend payout (%) 40.1 36.9 45.2 72.3 42.4 Operating profit growth (%) 137 205 209 (27.2) 58.2 Interest cover 0.0 0.0 0.0 0.0 0.0 Other non-operating inc/(exp) (20) (14) 2 (6) (2) Dividend cover 2.5 2.7 2.2 1.4 2.4 Finance income 0 0 1 1 1 Acct. receivable turnover days 4.3 1.7 2.4 3.1 1.2 Finance expenses 0 0 0 0 0 Acct. payable turnover days 40.0 41.6 33.5 35.8 32.8 Associates & JCE 0 0 0 0 (1) Inventory turnover days Profit before taxation (13) 8 72 45 77 Cash cycle days (35.7) (39.9) (31.1) (32.7) (31.6) Taxation 0 (1) (5) (4) (6) Dupont Analysis FY12A FY13A FY14A FY15A FY16A Non-controlling interests 0 0 0 0 1 Tax burden (%) 104 84.1 92.7 92.3 93.9 Net profit (13) 7 66 41 73 Interest burden (%) (177) 37.1 104 89.7 97.5 Other Adjustments on UP 21 14 0 0 0 Operating profit margin (%) 16.9 25.3 33.6 24.7 24.6 Underlying Profit 7 21 66 41 73 Asset turnover 2.6 1.0 1.1 0.9 1.4 Underlying profit growth (%) 149 194 214 (37.5) 75.0 Leverage ratio (0.3) 2.2 1.1 1.2 1.2 EPS (USD) (0.025) 0.007 0.046 0.029 0.052 ROA (%) 42.7 24.4 36.0 19.0 31.3 Underlying EPS (USD) 0.013 0.021 0.046 0.029 0.052 ROE (%) (14.6) 52.8 41.2 22.0 37.6 Underlying EPS growth (%) 146 60.1 115 (37.3) 80.2 DPS (USD) 0.01 0.01 0.02 0.02 0.02 DPS growth (%) 0.0 47.4 163 0.3 5.7 Balance Sheet (USDm) FY12A FY13A FY14A FY15A FY16A Cashflow (USDm) FY12A FY13A FY14A FY15A FY16A Fixed assets 2 2 3 5 8 EBIT 9 24 72 53 83 Associates & JCE 0 0 3 0 1 Depreciation & amortization (1) (1) (1) (2) (3) Others 1 1 8 12 11 Interest expense 0 0 0 0 0 Non-current assets 2 2 14 17 19 Change in working capital 1 (6) 0 5 (5) Inventories 0 0 0 0 0 Tax paid 0 0 (1) (5) (4) Debtors & prepayments 4 13 23 18 40 Other operating cashflow 1 1 2 2 3 Bank deposits & cash 15 135 181 186 184 Operating activities 10 18 71 54 74 Others 0 0 0 0 0 Capex (1) (1) (4) (4) (5) Current assets 19 149 204 203 224 Free cash flow 9 17 67 49 69 Bank & other borrowings 0 0 0 0 0 Disposal of non-current assets 0 0 0 0 0 Trade & payables 2 3 8 5 14 Associates & JCE (net) 0 0 0 0 0 Taxation 0 1 5 3 5 Interest received 0 0 0 0 0 Others 75 11 17 20 28 Dividends received 0 0 0 0 0 Current liabilities 77 15 30 28 47 Other investing cashflow 0 (10) (49) 50 (2) Bank & other borrowings 0 0 0 0 0 Investing activities (1) (11) (53) 46 (7) Others 0 0 0 0 0 New loans raised 0 0 0 0 0 Non-current liabilities 0 0 0 0 0 Repayment of loans 0 0 0 0 0 Net assets (56) 136 187 191 196 Dividends paid 0 (5) (13) (38) (38) Share capital 0 0 0 0 0 Other financing cashflow 0 108 (3) (2) (31) Premium & reserves (56) 136 187 191 196 Financing activities 0 103 (16) (40) (68) Shareholders' funds (56) 136 187 191 196 Inc/(dec) in cash 9 110 2 59 (1) Non-controlling interests 0 0 0 1 0 Cash at beginning of year 6 15 125 127 186 Total equity (56) 136 187 191 196 Foreign exchange effect 0 0 0 (1) 0 BVPS (USD) (0.1) 0.1 0.1 0.1 0.1 Cash at end of year 15 125 127 186 184 Guosen Securities (HK) 5
Information Disclosures Stock ratings, sector ratings and related definitions Stock Ratings: Buy: A return potential of 10 % or more relative to overall market within 6 12 months. Neutral: A return potential ranging from -10% to 10% relative to overall market within 6 12 months. Sell: A negative return of 10% or more relative to overall market within 6 12 months. Sector Ratings: Overweight: The sector will outperform the overall market by 10% or higher within 6 12 months. Neutral: The sector performance will range from -10% to 10% relative to overall market within 6 12 months. Underweight: The sector will underperform the overall market by 10% or lower within 6 12 months. Interest disclosure statement The analyst is licensed by the Hong Kong Securities and Futures Commission. Neither the analyst nor his/her associates serves as an officer of the listed companies covered in this report and has no financial interests in the companies. Guosen Securities (HK) Brokerage Co., Ltd. and its associated companies (collectively Guosen Securities (HK) ) has no disclosable financial interests (including securities holding) or make a market in the securities in respect of the listed companies. Guo sen Securities (HK) has no investment banking relationship within the past 12 months, to the listed companies. Guosen Securities (HK) has no individual employed by the listed companies. Disclaimers The prices of securities may fluctuate up or down. It may become valueless. It is as likely that losses will be incu rred rather than profit made as a result of buying and selling securities. The content of this report does not represent a recommendation of Guosen Securities (HK) and does not constitute any buying/selling or dealing agreement in relation to the securities mentioned. Guosen Securities (HK) may be seeking or will seek investment banking or other business (such as placing agent, lead manager, sponsor, underwriter or proprietary trading in suc h securities) with the listed companies. Individuals of Guosen Securities (HK) may have personal investment interests in the listed companies. This report is based on information available to the public that we consider reliable, however, the authenticity, accuracy or completeness of such information is not guaranteed by Guosen Securities (HK). This report does not take into account the particular investment objectives, financial situation or needs of individual clients and does not constitute a personal investment recommendation to anyone. Clients are wholly responsible for any investment decision based on this report. Clients are advised to consider whether any advice or recommendation contained in this report is suitable for their particular circumstances. This r eport is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. This report is for distribution only to clients of Guosen Securities (HK). Without Guosen Securities (HK) s written authoriza tion, any form of quotation, reproduction or transmission to third parties is prohibited, or may be subject to legal action. Such information and opinions contained therein are subject to change and may be amended without any notification. This 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 Guose n Securities (HK) and its group companies to any registration or licensing requirement within such jurisdiction. Guosen Securities (HK) 6
信息披露 公司评级 行业评级及相关定义 公司评级买入 : 我们预计未来 6-12 个月内, 个股相对大盘涨幅在 10% 以上 ; 中性 : 我们预计未来 6-12 个月内, 个股相对大盘涨幅介于 -10% 与 10% 之间 ; 减持 : 我们预计未来 6-12 个月内, 个股相对大盘跌幅大于 10% 行业评级超配 : 我们预计未来 6-12 个月内, 行业整体回报高于市场整体水平 10% 以上 ; 中性 : 我们预计未来 6-12 个月内, 行业整体回报介于市场整体水平 -10% 与 10% 之间 ; 低配 : 我们预计未来 6-12 个月内, 行业整体回报低于市场整体水平 10% 以上 利益披露声明 报告作者为香港证监会持牌人士, 分析员本人或其有联系者并未担任本研究报告所评论的上市法团高级管理人员, 也未持有其任何财务权益 本报告中, 国信证券 ( 香港 ) 经纪有限公司及其所属关联机构 ( 合称国信证券 ( 香港 )) 并无持有该公司须作出披露的财务权益 ( 包括持股 ), 在过去 12 个月内与该公司并无投资银行关系, 亦无进行该公司有关股份的庄家活动 本公司员工均非该上市公司的雇员 免责条款 证券价格有时可能非常波动 证券价格可升可跌, 甚至变成毫无价值 买卖证券未必一定能够赚取利润, 反而可能会招致损失 本研究报告内容既不代表国信证券 ( 香港 ) 的推荐意见, 也并不构成所涉及的个别股票的买卖或交易要约 国信证券 ( 香港 ) 或其集团公司有可能会与本报告涉及的公司洽谈投资银行业务或其它业务 ( 例如配售代理 牵头经办人 保荐人 包销商或从事自营投资于该股票 ) 国信证券 ( 香港 ) 不排除其员工有个人投资于本报告内所提及的上市法团 报告中的资料均来自公开信息, 我们力求准确可靠, 但对这些信息的正确性 公正性及完整性不做任何保证 本报告没有考虑到个别客户特殊的投资目标 财务状况或需要, 并不构成个人投资建议, 客户据此投资, 责任自负 客户在阅读本研究报告时应考虑报告中的任何意见或建议是否符合其个人特定状况 本报告并不存在招揽或邀约购买或出售任何证券的企图 本报告仅向特定客户传送, 未经国信证券香港书面授权许可, 任何人不得引用 转载以及向第三方传播, 否则可能将承担法律责任 研究报告所载的资料及意见, 如有任何更改, 本司将不作另行通知 在一些管辖区域内, 针对或意图向该等区域内的市民 居民 个人或实体发布 公布 供其使用或提供获取渠道的行为会违反该区域内所适用的法律或规例或令国信证券 ( 香港 ) 受制于任何注册或领牌规定, 则本研究报告不适用于该等管辖区域内的市民 居民或身处该范围内的任何人或实体 Guosen Securities (HK) 7