Earnings Alert: FY21 earnings below market expectations, overseas expansion to continue
- Adjusted net profit in FY21 decreased by 22%, below the market expectation of c.10% increase
- Revenue increased by 3% only, due to delays in new game launches caused by suspension of game license approval
- Revised down FY22F and FY23F adjusted earnings by 26% and 10% respectively to reflect higher marketing and R&D expenses
- Maintain BUY with lower TP of HK$ 4.20 based on 9x P/E
FY21 results highlights
– Revenue in FY21 increased by 3% y-o-y to Rmb3,857m, below market expectations, mainly due to delays in launching new games which was caused by the suspension of the game license approval
– Revenue generated from overseas business increased from Rmb6.2m to Rmb458.5m, representing 11.6% of total revenue in 2021 (vs. 0.2% in 2020)
– Segment wise, game publishing revenue decreased by 5% y-o-y to Rmb2,820m, game development revenue increased by 24% to Rmb905m, and IP licensing revenue increased by 107% to Rmb232m
– Adjusted net profit decreased by 22% to Rmb630m, below the market expectation of c.10% increase
– The disappointment in earnings was mainly due to the delay in launching new games which was caused by the suspension of game license approval and higher marketing expenses
– Gross margin increased from 32% to 37.2% in FY21, mainly driven by high-margin IP licensing and the overseas game publishing business
Our View
– The company expects the overseas game publishing business to further accelerate in 2022, with eight more key titles to be launched in overseas markets this year
– Management guided 30% of revenue will come from the overseas business in 2022 and set a target of 50% in next few years.
– Despite the game license issues disruption, CMGE had successfully launched c.20 games in 2021, showing its capabilities to deliver resilient performance amid uncertainties. Looking forward, CMGE has obtained Banhao for several heavyweight games that scheduled to launch in 2022, which support decent domestic revenue growth this year. We remain confident about CMGE’s growth in the longer run, supported by its strong game pipelines and accelerated overseas expansion.
– We revised down FY22 revenue forecast by 5% to reflect the delay of games launch due to game license issues and raised FY23F revenue by 12%, considering accelerated overseas expansion. We now project FY22F and FY23F revenue to increase by 40% and 23% to Rmb5,522m and Rmb6,861m, respectively, mainly driven by rapid growth of the overseas business.
– Factoring in higher marketing and R&D expenses to support overseas expansion, we have revised down our adjusted net earnings by 26% and 10% for FY22F and FY23F. We now project FY22F and FY23F adjusted earnings to increase by 46% and 32% to Rmb922m and Rmb1,213m, respectively.
– We maintain our BUY call on CMGE for its sustainable growth backed by a strong game portfolio and solid game development capabilities amid macro uncertainty. Our TP of HK$4.20 is based on an 9x FY22F P/E, largely in line with its historical range.