We expect CMGE to deliver solid 1H21E results, with topline/bottom line +40%/18% YoY. Apart from eye-catching performance of The Voyage <航海王热 血航线>, two new games (Dynasty Warriors<真 三国无双 霸> and New Sword and Fairy <仙剑奇侠传:挥剑问情>) to be launched in Aug would be further catalysts. We suggest investors to move into its 2H21E strong pipeline, backed by three highly-anticipated titles cooperating with Tencent & Toutiao. We lifted its earnings by 5%/8%/6% in FY21/22/23E, to reflect its better outlook. Looking ahead, we expect CMGE to deliver solid growth in the long run, backed by valuable IP reserve and rich pipeline. We lifted our TP to HK$6.2 from HK$4.4.
Solid 1H21E ahead. We forecast CMGE’s rev/ adj. net profit at RMB240mn/RMB400mn in 1H21E, +40%/18% YoY. Such eye-catching topline growth was primarily boosted by existing games momentum and two new titles outperformance. Backed by strong promotion of Toutiao, The Voyage ranked TOP3-9 in iOS grossing rank in first month after launch, with estimated monthly grossing of RMB400mn. Soul Land <斗罗大陆> also performed well, ranking TOP25-50 from Apr to Jul, with contribution of ~RMB200mn rev in 1H21E (in our estimate). Coupled with solid The New Legend Of The Condor Heroes <新射雕> and Thunder Empire <雷霆霸业> (estimating rev at RMB440mn and RMB300mn), CMGE would deliver growth well above the industry average. 1H21E margin could be slightly diluted by higher S&M (in new titles promotion) and R&D (development team expansion), but full-year earnings remains intact, in our view.
Eyes on two new titles in Aug. There are over 15 new titles to be launched in 2H21E. We expect Dynasty Warriors (cooperating with Tencent, to be launched on 5 Aug), New Sword and Fairy (cooperating with Toutiao) to boost 3Q21E game grossing with high visibility. 4Q21E momentum would continue, backed by new titles of Rakshasa Street <镇魂街> and The King of Fighters <全明星激斗> (with Toutiao’s guarantee annual grossing of RMB600mn). For 2022, mgmt. still prioritizes its IP-driven strategy to deliver sustainable growth.
Maintain BUY. We raised our earnings forecast by 5%/8%/6%, and lifted our DCF-based TP to HK$6.2 (implying 12x FY21E P/E), still below industry average of 15x. Further catalysts: 1) upcoming Dynasty Warriors and New Sword and Fairy in Aug; and 2) further cooperation with Bili.