【Company Research】CMGE Technology (302 HK) – Looking into 2H20E strong pipeline

CMGE delivered 1H20 results, with topline/bottom line +12.1%/27.6% YoY, in line with our estimates. We suggest investors to move into its 2H20E strong pipeline, backed by three highly-anticipated titles cooperating with Tencent & Toutiao. We are also surprised to see its new IP game The new legend of The Condor Heroes <新射雕群侠传> ranked Top 8 in iOS grossing rank after launch on 20 Aug, with estimated monthly grossing of RMB200mn. Looking ahead, we expect CMGE to deliver solid growth in the long run, backed by valuable IP reserve and rich pipeline. We keep our forecast and TP of HK$4.39 unchanged.

 

  • 1H20 in line. 1H20 revenue grew 12.1% YoY, slightly below our estimates. Adj. net profit grew 27.6% YoY, in line with our estimates. 1H20 growth was primarily from contribution of existing games and new game Xuan Yuan Sword <轩辕剑>, with benefit from COVID-19. Looking ahead, we expect CMGE to perform well in 2H20E and long run, and forecast its revenue/ adj. net profit to grow 28%/31% YoY in FY20E.

 

  • Bullish on 2H20E momentum, with three key titles in pipeline. After moderate pipeline in 1H20, we are impressed by its newly-launched title The new legend of The Condor Heroes <新射雕群侠传>. Backed by its hot IP of Jin Yong <金庸> and unique ink painting style, The Condor Heroes was ranked Top 8 in iOS grossing rank, with user retention over 50%. We estimate its initial monthly grossing at RMB200mn, and long-term net margin at 20%. Apart from that, there are still 12 key titles to be launched in 2H20E. We expect The King of Fighters <全明星激斗>, One Piece: The Voyage <航海王热血航线> to deliver meaningful contribution in FY20 & FY21E, with Toutiao’s guarantee annual grossing of RMB600mn/RMB1bn. Monster List <妖怪名单>, agented by Tencent, could also be the next hot title, after launch at the end of Sep. Dynasty Warriors <真•三国无双>, another game cooperating with Tencent, might be delayed to 1Q21E for game license, but would pose minimal financial impact in FY20E. We also keep positive on its FY21E growth, backed by around 20 key titles in pipeline.

 

  • Maintain BUY. We barely changed our forecasts, and keep our DCF-based TP of HK$4.39 unchanged (implying 11.4x FY20E P/E), still below industry average of 15x P/E. Valuation is attractive. We believe CMGE’s positive price drivers and catalysts originate from: 1) upcoming Monster List <妖怪名单> in Sep; and 2) two key titles agented by Toutiao in 4Q20.
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