研究报告全文：21Aug2023CMBInternationalGlobalMarketsEquityResearchCompanyUpdateFriendTimesInc6820HKBUYMaintainLookingintomoderaterecoveryinFY24ETargetPriceHK132PreviousTPHK145UpDownside76FriendTimes1H23resultsmissedourestimatesconsensuswithrev-25YoYCurrentPriceHK075andadjnetlossatRMB78mnondeclininglegacygamesandsoftnewtitlesLookingintoFY24EweexpectmoderaterecoverywiththelaunchoftheTwistChinaInternetSectoroftheFateandthecompanytoturnaprofitwithRMB38mninFY24ETofactoringamesoftnessandpotentialSMexpensesincurredbynewlauncheswecutSophieHuangFY23-25Erevby211-258whiletrimmedNPMby1-15pptsOurDCF-based85239000889TPwasadjustedtoHK132sophiehuangcmbicomhkEasonXu1H23softongamedeclineandheavierSM1H23revdeclined25YoY8523900084934belowconsensusmainlyattributableto1weaker-than-expectedlegacyeasonxucmbicomhkgames2softAstoryofLalasRisingStarwithSMscalingbackforunsatisfieduserretentionand3highbaseduetolaunchofPromiseofLinyunStockDatain1H22AdjnetlosscameinatRMB78mndraggedbypromotionofAstoryMktCapHKmn1657ofLalaandRMB63mnimpairmentofthedeferredtaxassetsAvg3mthstoHKmn02852wHighLowHK123076LookingintomoderaterecoveryinFY24EDuetothelackofnewlaunchesTotalIssuedSharesmn2181anddeclininglegacygames2H23EmightstillbearpressureforecastingrevSourceBloomberg-25YoYbeforethelaunchofTheTwisttheFateToF浮生忆玲珑inShareholdingStructure4Q23EFY24EOntheflipsideFTislikelytoachievebreakevenin2H23EEternalHeartHolding430forecastingnetprofitofRMB076mnthankstostringentcostcontrolonbothWarmSunshine87staffingandprojectmanagementalongwithlowerSMexpensesLookingLingLongHolding86SourceBloombergintoFY24EweexpectFTtoseemoderaterecoveryforecasting23YoYbackedbycontributionofToFInJul2023thegamelaunchedaone-monthSharePerformanceSummerBetaTestwithin-gamepurchasesenabledWeexpectToFtobeAbsoluteRelative1-mth-165-115launchedin4Q23E1H24EandachievemeaningfulrevcontributioninFY24E3-mth-296-233GivenSMexpensesforlauncharefront-endloadedmarginmightbediluted6-mth-345-250intheneartermAssuchweforecastFY24ErevtoachievepositivegrowthSourceBloombergandturntoaprofitwithRMB38mnforthewholeyear12-mthPricePerformanceDiversifiedgenreandoverseasexpansionforLTgrowthIn1H23HK6820HKHSIrebasedoverseasmarketaccountedfor39oftotalrevvs25in1H22Apartfrom14femalegamesFTwilltestthewaterformartialartsgameegCodeWX12andEuropeanroyaltytypeCodePEinFY24EWeexpectitsdiversified10categoryoverseasexpansiontoreduceconcentrationandbringLTgrowth0806MaintainBUYTofactorinsoftgameandpotentialSMexpensesincurred04byToFwecutFY23-25Erevby211-258whiletrimmedNPMby1-15ppts0200OurDCF-basedTPwasadjustedtoHK132Aug-22Nov-22Feb-23May-23Aug-23EarningsSummarySourceBloombergYE31DecFY21AFY22AFY23EFY24EFY25ERevenueRMBmn16161524114214011592AuditorKPMGYoYchange-26-6-252314AdjnetincomeRMBmn275258038206AdjEPSRMB013001004002009YoYgrowth-45-91NANA438ConsensusEPSRMBNANA009018025PEx53586NA38471PSx1011141210Yield17487NA1368ROE172NA211NetgearingNetcashNetcashNetcashNetcashNetcashSourceCompanydataBloombergCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1MOREREPORTSFROMBLOOMBERGRESPCMBRGOORhttpwwwcmbicomhk21Aug2023Figure11H23financialreviewRMB000Dec-YE1H201H211H221H23YoYRevenue1050260833007826057620342-25Costofsales361351272705253312207728Grossprofit688909560302572745412614-28Salesandmarketingexpenses379030280810469968276068Researchanddevelopmentexpenses130694178181169112160019Generalandadministrativeexpenses21680313403403624977Otherincome17646116761715734013Operatinglossprofit175151816478321414437Financecosts501126156Shareoflossofanassociate1751733910-Changesinfairvalueofequityinvestmentmeasuredatfairvaluethroughprofitorloss27342212100961977Profitbeforetaxation172192821157405416570Incometaxexpense90764817610921367Deferredtax63007Profitfortheyear1631161302917296280944Adjprofitfortheyear1631161560375846177911MarginAnalysisGrossmargin66676967Operatingmargin1710-10-2Adjnetmargin1619-7-13GrowthAnalysisRevenue35-21-1-25Grossprofit39-192-28Operatingprofit9-53NANANetprofit9-20NANASourceCompanydataCMBIGMestimatesFigure2FTsfinancialsforecastsinFY23-25ERMBmnDec-YEFY21FY22FY23EFY24EFY25E23-25ECAGRRevenue1616152411421401159218Costofsales527480371448509Grossprofit10891044771953108319Salesandmarketingexpenses456647459561501Researchanddevelopmentexpenses365357308329334Generalandadministrativeexpenses6770475556Otherincome3948252929Operatinglossprofit241171837220Financecosts00000ChangesShareoflossinfairofvalueanassociateofequityinvestmentmeasuredatfairvalue31222throughprofitorloss38364Profitbeforetaxation234241841222Incometaxexpense4211216Profitfortheyear275258038206Non-controllinginterests-----Netprofitattributabletoequityshareholders275258038206MarginAnalysisGrossmargin6768686868Operatingmargin151-2314Netmargin172-7313GrowthAnalysisRevenue-26-6-252314Grossprofit-26-4-262414Operatingprofit-56-93NANA490Netprofit-45-91NANA438SourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE221Aug2023Figure3FTrevestimates2019-2025EFigure4Revmixtrend2019-2025E250040100RMBmn3020008020601500100401000-1020500-200FY19FY20FY21FY22FY23EFY24EFY25E0-30FY19FY20FY21FY22FY23EFY24EFY25ERevfromself-developedgamespublishedthroughIPlicensearrangementandothersRevYoYRevfromself-developedgamespublishedbytheGroupSourceCompanydataCMBIGMestimatesSourceCompanydataCMBIGMestimatesFigure5FriendTimeskeygamepipelinein20232024TitleChinesetitleLicenseGenreLaunchdateestDetailsAnewgenerationoffemale-orientedtraditionalChinese-stylemobilegameisinheritedfromtheFateoftheEmpress浮生為卿歌whichcreatesanewTwistoftheFate浮生忆玲珑YPRG4Q231H24themeadoptsnext-generationengineeffectsartisticproductiontechniquesandinnovativegameplayfeaturesaimingtobringplayersafreerealisticandmultifacetedgameplayexperienceArole-playingstrategygamesetinafictionalChinese-stylewuxiaworldfeaturingtheclassicmartialartsasitsCodeWX代号武侠NMMO2024coreThegameillustratesanunrestrainedandpleasantworldofwuxiacreatingstereoscopicandrealisticmartialartistsandamulti-dimensionalwuxiaepicAfemale-orientedrole-playinggamesetinafictionalEuropeanroyalworldThegameportraystheWesternroyalfamilywithimmersiveaudio-visualexperiencesandamulti-dimensionalstorytellingapproachcreatingCodePE代号PENStrategy2024adynastyoflegendaryqueenPlayerswillentertheroyalworldexperiencethestruggleforpowerenjoyemotionalinteractionsandcastagenerationofqueenlegendsSourceCompanydataCMBIGMPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE321Aug2023MaintainBUYTPatHK132TofactorinexistinggamedeclineandpotentialSMexpensesincurredbyToFwecutFY23-25Erevby211-258whiletrimmedNPMby1-15pptsforconservativeestimatesWemaintainBUYratingbutadjustDCF-basedTPtoHK132fromHK145Gamesoftnesshasbeenwellpricedinrecentpriceweaknessand1H23wouldbeearningstroughasitsexistingkeygamesturnedprofitableWeexpectthepotentiallaunchofToFtohelpitreboundanddiversifiedgenreandoverseasexpansionmightbringLTgrowthKeycatalysts1potentialbreakevenin2H23E2ToFtobelaunchedin4Q23E1H24EFigure6CMBIGMestimatesvsconsensusCMBIGMConsensusDiffRMBmnDec-YE2023E2024E2025E2023E2024E2025E2023E2024E2025ERevenue114214011592172122212475-336-369-357Grossprofit7719531083117915211695-346-374-361Operatingprofit1837220167403545NA-908-596Adjnetprofit8038206200384527NA-900-609AdjEPSRMB004002009009018025NA-901-614Grossmargin675680680685685685-10ppts-05ppts-05pptsOperatingmargin-162713897181220-113ppts-155ppts-82pptsAdjnetmargin-7027129116173213-187ppts-146ppts-83pptsSourceCMBIGMestimatesBloombergFigure7EarningsrevisionNewOldDiffRMBmnDec-YE2023E2024E2025E2023E2024E2025E2023E2024E2025ERevenue114214011592153918162018-258-228-211Grossprofit7719531083104712351372-263-228-211Operatingprofit1837220131258297NA-855-260Adjnetprofit8038206125246278NA-844-259AdjEPSRMB004002009006011013NA-844-259Grossmargin675680680680680680-05ppts00ppts00pptsOperatingmargin-162713885142147-101ppts-115ppts-09pptsAdjnetmargin-702712981135138-151ppts-108ppts-08pptsSourceCMBIGMestimatesBloombergFigure8DCFvaluationDCFValuationRMBmn2023E2024E2025E2026E2027E2028E2029E2030EEBIT241841222348383410435448Tax112162431374345DA423936333230292827Changeinworkingcapital106156556667CAPEX383838384244454648FCF1343142206319345363379389FCFGrowth-44396548543PV13431361562101981811641306TerminalValue3068AssumptionsWACC149Taxrate100Riskfreerate353Costofdebt60Beta130Marketriskreturn114Costofequity149Longtermgrowth20Debt0WACC1314151617EquityValue05145134125116109PV222010148136127118110TerminalminusNetdebtRMBmn36915151139129120112growthminusMinorityinterestRMBmn0HKD100rate20155142132122114EquityValueRMBmn258925159145135124115FX0930164149137126117StockpriceHK13235169153141129119SourceCMBIGMestimatesBloombergPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE421Aug2023Figure9CompstableCompanyTickerMktcapCurrencyPriceCMBICMBIPEPSFY23-25EPSUSDmnRaitingTPFY23EFY24EFY25EFY23EFY24EFY25ECAGRFriendTimes6820HK212HKD08BUY13NA38471141210NADomesticGameTencent700HK408420HKD335BUY45820117015048433915NetEaseNTESUS65482USD102BUY1231821671524541376XDInc2400HK1036HKD17NANA508203124181512136Kingsoft3888HK5267HKD30NANA49629623043363049IGG799HK543HKD4NANANA5749080707NACMGE302HK570HKD2BUY469534408060526ArchosaurGames9990HK371HKD4NANA14512276151417NAPerfectWorld002624CH3730CNY14BUY4918214912931272519SanqiInteractive002555CH7851CNY26BUY3016914713030272414GiantNetwork002558CH3775CNY14NANA20817615877726417G-bits603444CH3972CNY403NANA19216114253454115KingnetNetwork002517CH4345CNY15NANA22017414765534621Average17413812833282617InternationalGameActivisionBlizzardATVIUS71481USD91NANA2192092007573705ElectronicArtsEAUS32694USD121NANA17515915043403911Take-TwoTTWOUS23822USD140NANA42818716543302965ROBLOXRBLXUS18034USD29NANANANANA554741NANintendo7974JT54867JPY6180NANA194224221505250-6BandaiNamco7832JT15462JPY3396NANA2302081922221209SquareEnix9684JT4531JPY5409NANA1661521531818184ZHoldings4689JT21365JPY409NANA31525821617161421CyberAgent4751JT3017JPY872NANA50321716406060573Sony6758JT104573JPY12130NANA16915213913121211Capcom9697JT10853JPY5957NANA366330300108958810OrientalLand4661JT64245JPY5168NANA80366357815413212319Nexon3659JT15862JPY2717NANA2041901725551489Average2472081883633318Average23117415735312913SourceBloombergCMBIGMPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE521Aug2023FinancialSummaryIncomestatementCashflowsummaryYE31DecRMBmnFY21AFY22AFY23EFY24EFY25EYE31DecRMBmnFY21AFY22AFY23EFY24EFY25ERevenue16161524114214011592Pre-taxIncome234241841222Games16161524114214011591DA2342393633Others01111ChangeinWC21061565Others81771427COGS527480371448509OperatingCF263155168233Grossprofit108910447719531083Capex5738383838SM456647459561501Others32943101414RD365357308329334InvestingCF38681282525GA6770475556Otherincome3948252929Equityraised00000Operatingprofit241171837220Changeofdebts00000Others217225000Financecosts00000FinancingCF217225000Othergainsnet77042Pre-taxIncome234241841222Netchangeincash3403482943208Cashbegofyr1093752404375418IncomeTax4211216FX10000MI-----Cashendofyr752404375418626Netprofit275258038206Adjnetprofit275258038206BalancesheetKeyratiosYE31DecRMBmnFY21AFY22AFY23EFY24EFY25EYE31DecFY21AFY22AFY23EFY24EFY25ENon-currentassets565556564567572SalesmixFixedasset279266276279284Games10009991000999999Right-of-useassets99543Others0001000101Intangibleassets34678Total10001000100010001000Others275277277277277GrowthrateCurrentassets124110578949631190Revenue25957251227136Cash752404375418626Grossprofit25842262236136Tradereceivables183104103126143EBIT557928NANA4904Othercurrentassets307549417419420Netprofit453909NANA4377Currentliabilities151106136165187PLratiosBankloans-----GrossMargin674685675680680Tradeandotherpayables1178088107121Pre-taxmargin145161629139Leaseliabilities11111Adjnetmargin170167027129Othercurrentliabilities3325475765Effectivetaxrate17828506070Non-currentliabilities910152022ReturnsContractliabilities910101314ROE16717NA24112Leaseliabilities-0588ROA15216NA25117Others-----AdjEPSRMB013001004002009TotalEquity16461497159116301836DPSRMB012006NA001005BVPSRMB075069073075084SourceCompanydataCMBIGMestimatesPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE621Aug2023DisclosuresDisclaimersAnalystCertificationTheresearchanalystwhoisprimaryresponsibleforthecontentofthisresearchreportinwholeorinpartcertifiesthatwithrespecttothesecuritiesorissuerthattheanalystcoveredinthisreport1alloftheviewsexpressedaccuratelyreflecthisorherpersonalviewsaboutthesubjectsecuritiesorissuerand2nopartofhisorhercompensationwasisorwillbedirectlyorindirectlyrelatedtothespecificviewsexpressedbythatanalystinthisreportBesidestheanalystconfirmsthatneithertheanalystnorhisherassociatesasdefinedinthecodeofconductissuedbyTheHongKongSecuritiesandFuturesCommission1havedealtinortradedinthestockscoveredinthisresearchreportwithin30calendardayspriortothedateofissueofthisreport2willdealinortradeinthestockscoveredinthisresearchreport3businessdaysafterthedateofissueofthisreport3serveasanofficerofanyoftheHongKonglistedcompaniescoveredinthisreportand4haveanyfinancialinterestsintheHongKonglistedcompaniescoveredinthisreportCMBIGMoritsaffiliateshaveinvestmentbankingrelationshipwiththeissuerscoveredinthisreportinpreceding12monthsCMBIGMRatingsBUYStockwithpotentialreturnofover15overnext12monthsHOLDStockwithpotentialreturnof15to-10overnext12monthsSELLStockwithpotentiallossofover10overnext12monthsNOTRATEDStockisnotratedbyCMBIGMOUTPERFORMIndustryexpectedtooutperformtherelevantbroadmarketbenchmarkovernext12monthsMARKET-PERFORMIndustryexpectedtoperformin-linewiththerelevantbroadmarketbenchmarkovernext12monthsUNDERPERFORMIndustryexpectedtounderperformtherelevantbroadmarketbenchmarkovernext12monthsCMBInternationalGlobalMarketsLimitedAddress45FChampionTower3GardenRoadHongKongTel85239000888Fax85239000800CMBInternationalGlobalMarketsLimitedCMBIGMisawhollyownedsubsidiaryofCMBInternationalCapitalCorporationLimitedawhollyownedsubsidiaryofChinaMerchantsBankImportantDisclosuresTherearerisksinvolvedintransactinginanysecuritiesTheinformationcontainedinthisreportmaynotbesuitableforthepurposesofallinvestorsCMBIGMdoesnotprovideindividuallytailoredinvestmentadviceThisreporthasbeenpreparedwithoutregardtotheindividualinvestmentobjectivesfinancialpositionorspecialrequirementsPastperformancehasnoindicationoffutureperformanceandactualeventsmaydiffermateriallyfromthatwhichiscontainedinthereportThevalueofandreturnsfromanyinvestmentsareuncertainandarenotguaranteedandmayfluctuateasaresultoftheirdependenceontheperformanceofunderlyingassetsorothervariablemarketfactorsCMBIGMrecommendsthatinvestorsshouldindependentlyevaluateparticularinvestmentsandstrategiesandencouragesinvestorstoconsultwithaprofessionalfinancialadvisorinordertomaketheirowninvestmentdecisionsThisreportoranyinformationcontainedhereinhavebeenpreparedbytheCMBIGMsolelyforthepurposeofsupplyinginformationtotheclientsofCMBIGMoritsaffiliatestowhomitisdistributedThisreportisnotandshouldnotbeconstruedasanofferorsolicitationtobuyorsellanysecurityoranyinterestinsecuritiesorenterintoanytransactionNeitherCMBIGMnoranyofitsaffiliatesshareholdersagentsconsultantsdirectorsofficersoremployeesshallbeliableforanylossdamageorexpensewhatsoeverwhetherdirectorconsequentialincurredinrelyingontheinformationcontainedinthisreportAnyonemakinguseoftheinformationcontainedinthisreportdoessoentirelyattheirownriskTheinformationandcontentscontainedinthisreportarebasedontheanalysesandinterpretationsofinformationbelievedtobepubliclyavailableandreliableCMBIGMhasexertedeveryeffortinitscapacitytoensurebutnottoguaranteetheiraccuracycompletenesstimelinessorcorrectnessCMBIGMprovidestheinformationadvicesandforecastsonanASISbasisTheinformationandcontentsaresubjecttochangewithoutnoticeCMBIGMmayissueotherpublicationshavinginformationandorconclusionsdifferentfromthisreportThesepublicationsreflectdifferentassumptionpoint-of-viewandanalyticalmethodswhencompilingCMBIGMmaymakeinvestmentdecisionsortakeproprietarypositionsthatareinconsistentwiththerecommendationsorviewsinthisreportCMBIGMmayhaveapositionmakemarketsoractasprincipalorengageintransactionsinsecuritiesofcompaniesreferredtointhisreportforitselfandoronbehalfofitsclientsfromtimetotimeInvestorsshouldassumethatCMBIGMdoesorseekstohaveinvestmentbankingorotherbusinessrelationshipswiththecompaniesinthisreportAsaresultrecipientsshouldbeawarethatCMBIGMmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreportandCMBIGMwillnotassumeanyresponsibilityinrespectthereofThisreportisfortheuseofintendedrecipientsonlyandthispublicationmaynotbereproducedreprintedsoldredistributedorpublishedinwholeorinpartforanypurposewithoutpriorwrittenconsentofCMBIGMAdditionalinformationonrecommendedsecuritiesisavailableuponrequestForrecipientsofthisdocumentintheUnitedKingdomThisreporthasbeenprovidedonlytopersonsIfallingwithinArticle195oftheFinancialServicesandMarketsAct2000FinancialPromotionOrder2005asamendedfromtimetotimeTheOrderorIIarepersonsfallingwithinArticle492atodHighNetWorthCompaniesUnincorporatedAssociationsetcoftheOrderandmaynotbeprovidedtoanyotherpersonwithoutthepriorwrittenconsentofCMBIGMForrecipientsofthisdocumentintheUnitedStatesCMBIGMisnotaregisteredbroker-dealerintheUnitedStatesAsaresultCMBIGMisnotsubjecttoUSrulesregardingthepreparationofresearchreportsandtheindependenceofresearchanalystsTheresearchanalystwhoisprimaryresponsibleforthecontentofthisresearchreportisnotregisteredorqualifiedasaresearchanalystwiththeFinancialIndustryRegulatoryAuthorityFINRATheanalystisnotsubjecttoapplicablerestrictionsunderFINRARulesintendedtoensurethattheanalystisnotaffectedbypotentialconflictsofinterestthatcouldbearuponthereliabilityoftheresearchreportThisreportisintendedfordistributionintheUnitedStatessolelytomajorUSinstitutionalinvestorsasdefinedinRule15a-6undertheUSSecuritiesExchangeActof1934asamendedandmaynotbefurnishedtoanyotherpersonintheUnitedStatesEachmajorUSinstitutionalinvestorthatreceivesacopyofthisreportbyitsacceptancehereofrepresentsandagreesthatitshallnotdistributeorprovidethisreporttoanyotherpersonAnyUSrecipientofthisreportwishingtoeffectanytransactiontobuyorsellsecuritiesbasedontheinformationprovidedinthisreportshoulddosoonlythroughaUS-registeredbroker-dealerForrecipientsofthisdocumentinSingaporeThisreportisdistributedinSingaporebyCMBISingaporePteLimitedCMBIGMGCompanyRegnNo201731928DanExemptFinancialAdviserasdefinedintheFinancialAdvisersActCap110ofSingaporeandregulatedbytheMonetaryAuthorityofSingaporeCMBIGMGmaydistributereportsproducedbyitsrespectiveforeignentitiesaffiliatesorotherforeignresearchhousespursuanttoanarrangementunderRegulation32CoftheFinancialAdvisersRegulationsWherethereportisdistributedinSingaporetoapersonwhoisnotanAccreditedInvestorExpertInvestororanInstitutionalInvestorasdefinedintheSecuritiesandFuturesActCap289ofSingaporeCMBIGMGacceptslegalresponsibilityforthecontentsofthereporttosuchpersonsonlytotheextentrequiredbylawSingaporerecipientsshouldcontactCMBIGMGat6563504400formattersarisingfromorinconnectionwiththereportPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE7