What's new
FriendTimes announced its plan to launch Lingyunnuo, a Chinese-style social role playing game （RPG） on January 20. Meanwhile, the firm is testing multiple games. We think excellent performances of its main game products will boost the firm’s valuation and liquidity. We suggest keeping an eye on investment opportunities brought on by the launch of new products.
Comments Lingyunnuo is scheduled to launch on January 20; improving visibility for earnings growth in 2022. The firm plans to launch
Lingyunnuo, a self-developed, social role-playing game （RPG） on January 20. The game is set in ancient China, and is characterized by elegant Chinese-style designs and Jiangnan culture. In 2021, the game won the Best Art and Design Award among the top 10 excellent games in China awards by the Game Publishing Committee （GPC） of the China Audio-Video and Digital Publishing Association. As of January 11, there were more than 800,000 bookings for the game on the official website, and 370,000 on TapTap. We think the launch of Lingyunnuo will contribute visible earnings growth for FriendTimes.
Stable gross billings of existing games demonstrate firm’s operation competency in long term. Gross billings of Fate of the Empress, a
female-oriented Chinese-style game launched at end-2019, remained stable. According to data from qimai.com, Tales of the Empress achieved an average daily best-seller ranking of 28 in 1Q21 and 2Q21, 30 in 3Q21, and 31 in 4Q21. The firm’s other games, such as Legend of Empress （launched in 2015）， Royal Chaos （2017）， and Rise of Queendom （2018） to also maintained steady operation and upgrades in versions. We attribute the firm’s successful operation of classic games and stable gross billings to its close interaction with users and continuous product updates.
Continues to make breakthroughs in vertical themes; exploring innovative gameplay of multiple categories. On one hand, the company continues to develop new female-oriented game products in which it enjoys a competitive advantage. The firm has expanded from games themed around ancient China to modern, urban-style games. GO LALA GO, a simulation game under R&D, is set in a modern workplace. In order to provide users with an immersive experience, the game not only allows users to change outfits and customize a character’s appearance, but also provides game modes such as travelling and shopping. As of January 11, there were 210,000 bookings for the game at the official website, and 20,000 more on TapTap. The firm has also made efforts to expand gameplay through independent R&D and signing licensing agreements with other firms. According to company announcements and official social media accounts, the firm has opened a limited trial version for pre-download of a self-developed game Code: FM, while Code: FS2 （the second generation of the Tales of the Empress series） may come into commercial operation in 2023. We believe the company continues to make breakthroughs in game themes and gameplay, and has steadily advanced R&D of new games. We suggest watching earnings growth driven by new games.
Valuation and recommendation
Considering marketing preparations and increased R&D investment in new games, we lower our 2021 and 2022 net profit forecasts 15.7% and 14.1% to Rmb263mn and Rmb384mn. We introduce a 2023 net profit forecast of Rmb557mn. The stock is trading at 7.3x 2022e P/E. We maintain OUTPERFORM and our target price of HK$2.39, implying 11.5x 2022e P/E, offering 59.3% upside.
Risks
Industry regulations; disappointing performance of launched games and new games; weak liquidity.