【行业研究报告】友谊时光-Eyes on mini-game potential and cost control

22Mar202422Mar2024CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateFriendTimes(6820HK)Eyesonmini-gamepotentialandcostcontrolFriendTimesreportedlargelyin-lineFY23results,whichwethinkhasbeenalreadypricedin.TwistoftheFate(ToF2)rankedtop50-70intermsofiOSgrossingin1Q24quarter-to-date.WeexpectToF2tokeeprelativelystablegrossingahead,andthenextfocuscouldbe:1)Androidchannelexpansion;2)overseasversionstobereleased;and3)improvingS&Mefficiency.Minigamesperformwell,andweexpectmoretitlestounlockgrossingpotential.MgmtprioritizescostdisciplineinFY24,withpersonneladjustmentandprudenthigh-R&Dprojectdevelopment.Wetrimourearningsforecastby18%-28%forFY24-25EtofactorinToF2’sperformance,withalowerTPatHK$1.8.LookingbeyondFY23results.FriendTimesreportedFY23results,withrevenue-31%YoY(2%belowourestimates),whileadj.netlossreachedRMB133mn(largelyinline).Thenetlosspositionwasmainlyduetoexistinggames’grossingdeclineandhigherS&M.Wethinkitsresultsperformancehasbeenwellpricedin,andwesuggestlookingtonewgameperformanceandminigameupsideinFY24E.ToF2tokeepstablegrossingandenhancemargin.Afterlaunchon2Jan2024,ToF2(浮生忆玲珑)rankedtop50-70intermsofiOSgrossingin1Q24QTD.WeexpectToF2tomaintainarelativelystablegrossingtrendahead,andthenextfocuscouldbe:1)Androidchannelexpansion;2)overseasversionstobereleased;and3)improvingS&Mefficiency.MgmtprioritizescostdisciplineinFY24,withpersonneladjustmentandprudenthigh-R&Dprojectdevelopment.Moretitlestocome,withmini-gamesshowingupside.InkSword:Jianghu(墨劍江湖,martialartsgamewithlicenseapproval)hascompletedaroundofpayingtests,andreceivedsoliduserfeedback.Weexpectittobereleasedinthesummerof2024,andattractmoremaleusers.ReignofDestiny(Europeanroyaltytype)isexpectedtoundergotworoundsoftestsinoverseasmarketsin1H24Eandtobereleasedin2H24E/FY25E.Moreover,FT’smini-gamePromiseofLingyun(凌雲諾)performedwell(monthlygrossing>RMB$5mn),andweexpectFTtoconvertmultiplekeytitlestomini-games,unlockinggrossingpotential.MaintainBUY.TofactorinToF’sperformance,wetrimourearningsforecastby18%-28%forFY24-25E,withalowerTPatHK$1.8.TargetPriceHK$1.8(PreviousTPHK$2.0)Up/Downside80.0%CurrentPriceHK$1.00ChinaEntertainmentSophieHUANG(852)39000889sophiehuang@cmbi.com.hkStockDataMktCap(HK$mn)2,180.0Avg3mthst/o(HK$mn)3.752wHigh/Low(HK$)1.62/0.75TotalIssuedShares(mn)2180.0Source:FactSetShareholdingStructureEternalHeartHoldings43.0%WarmSunshine8.7%Source:HKExSharePerformanceAbsoluteRelative1-mth-10.7%-12.6%3-mth-21.3%-22.4%6-mth25.0%30.9%Source:FactSet12-mthPricePerformanceSource:FactSetEarningsSummary(YE31Dec)FY22AFY23AFY24EFY25EFY26ERevenue(RMBmn)1,5241,0561,4741,9332,048YoYgrowth(%)(5.7)(30.7)39.631.16.0Adjustednetprofit(RMBmn)58.0(131.8)180.3256.9299.4DilutedEPS(RMBcents)1.90(6.10)8.2711.7813.73YoYgrowth(%)(85.0)NANA42.416.6ConsensusEPS(RMBcents)NANA10.525.0NAP/S(x)1.31.91.41.01.0P/E(x)50.7NA11.17.86.7Yield(%)6.2NA4.56.47.5ROE(%)1.6(10.2)12.413.914.1Source:Companydata,Bloomberg,CMBIGMestimates