CMGE reported largely-in-line 1H21 results, with topline/ bottom line +27%/+18% YoY, -9%/0% against our estimates. Apart from robust performance of The Voyage <航海王:热血航线> and Soul Land <斗罗大陆:斗神再临> in China, CMGE achieved eye-catching growth in game development, IP licensing, and overseas biz. There are 15+ new titles to be launched in 2H21E, and we expect Dynasty Warriors and New Sword and Fairy to boost 2H21E momentum. We keep our forecast unchanged, with TP at HK$6.2. Maintain BUY.
1H21 largely-in-line. CMGE’s 1H21 rev/ adj. net profit +27%/+18% YoY, -9%/0% against our estimates. By segment, game publishing/ development/ IP licensing revenue +2.4%/156.8%/2012.6% YoY, backed by successful new games (The Voyage with ByteDance and Soul Land) and existing portfolio (Thunder Empire and Condor Heroes). Overseas rev +6x YoY to RMB219.7mn with low base, primarily due to strong Condor Heroes in Asia.
Moving into strong 2H21 pipeline. There are 15+ new titles to be launched in 2H21E, and we expect Dynasty Warriors (真-三国无双 霸, launched on 5 Aug with Tencent) and New Sword and Fairy (仙剑奇侠传:挥剑问情, with ByteDance) to boost 2H21E momentum. Dynasty Warriors performed well, ranking Top 9 in iOS grossing rank in first week after launch. Other anticipated titles in 2H21E include Sword and Fairy 7 (仙剑七, 15 Oct), Thunder Empire 3, My Sword Diary <我的御剑日记>, and Rakshasa Street <镇魂街>. Coupled with overseas rollout of Condor Heroes, Hitman Reborn, and Sword and Fairy 7, we believe CMGE rev/adj. net income will +10%/+16% in 2H21E. As minors in China only contributed 0.026% of CMGE’s 1H21 rev, we believe risks of tightening game regulations are manageable.
Focusing on game + IP development and collaboration. CMGE acquired the remaining interest of Softstar and Sword and Fairy right in mainland China at HK$642mn, doubling down on its IP-centric strategy. Apart from collaboration with Huawei and Bilibili (third-largest shareholder since Apr 2021), CMGE invested in four game developers in 2021, including its strategically self-developed game with Sword and Fairy IP (Project: World).
Maintain BUY. We keep our forecast unchanged, with TP at HK$6.2 (implying 12x FY21E P/E). Maintain BUY. Further catalysts: 1) upcoming titles in 2H21E; 2) further cooperation with Bilibili.