Hong Kong, Aug 20, 2014 - (ACN Newswire) - China Mobile Games and Entertainment Group Limited ("CMGE" or the "Company") (Nasdaq: CMGE), a leading mobile game company in China, reported its unaudited financial results for the second quarter ended June 30, 2014. Recorded a revenue of RMB275 million, representing increase of 281% compared with that in the same period of last year and 27.9% compared with that in the previous quarter. Net profit was RMB54.54 million, as compared to a loss of RMB14.19 million in the year-ago period; on a quarterly basis, its net profit grew 57.5%. Barclays and Nomura both reiterate "Buy" rating for CMGE and details as below.
Barclays: Rich and diversified growth initiativesCMGE delivered a strong set of results, with 2Q14 total net revenues increasing 281% y/y (28% q/q) to US$44.3mn and non-GAAP net margins improving to 23% from -5.5% a year ago, thanks to strong growth of self-developed games, as the publishing business leveraged its extensive games portfolio, and successful new game launches. Following the recent management reorganization, CMGE is aiming to deliver sustainable growth from a higher-quality games portfolio that will benefit from better operational efficiency in game publishing and deeper development from newly acquired game IP. We revise our revenue and earnings assumptions to reflect a higher contribution from game publishing, excluding billings shared with third parties. Our new PT of US$31 is based on 15x (unchanged) our revised 2015E non- GAAP EPADS of US$2.10 (from US$2.25), implying a PEG ratio of 0.24x, which we see as reasonable considering the strong earnings growth offset by the hit-or-miss nature of new games. We maintain our OW rating.
3Q growth guided to +237-257% y/y: CMGE guided 3Q revenues to be US$53.2-US$56.4mn, up 237-257% y/y and 20-27% q/q. We now model 3Q14 total revenues at US$55.2mn (249% y/y) and non-GAAP OpM to be 20.4%, up from 18.9% in 2Q14.
Enriched games pipeline, aiming for quality: CMGE further enriched its games pipeline during 2Q, thanks to successful wins of IP for several well-known games from Japan and domestic partners. The self-developed pipeline includes Naruto, One Piece and Shaolin Temple, and licensed games include Uncharted Water5, BuBuJing Qing and Raptide2.
Stronger distribution channels: CMGE noted its game centre app has been preinstalled in 35mn handsets so far and is on track for a total of 80mn this year. Potential new revenues coming from new user penetration as a result of strategic cooperation with a number of free wifi service providers will start to show initial traction and contribution in 4Q14, according to management.
Nomura: Closes chapter on restructuring process; Maintain Buy on abundant IP resources and solid growthCatalyst/action: curtain comes down on management restructuring; valuable IP may stimulate growthCMGE said that its Independent Committee of the Company has completed its review of bribery allegations and did not find any evidence. It also said it has appointed former President Mr. Shuling Ying as its new COO. CEO Ken Jian Xiao and Mr Shuling Ying's recent share purchases of CNY10m worth of shares each further aligns the interests of management and the company.
Super Hero to drive growth in 2H; acquired IP to be the next catalystSuper Hero, launched in end-May, has achieved strong performance in terms of user engagement and monetization, according to the company. We believe it's still in the early stage of its lifecycle and it should drive CMGE's performance in the coming quarters. CMGE also announced the acquisition of abundant mobile game IP resources recently, including for One Piece and Naruto. We believe IP plays a more important role in mobile games than for PC games as it helps the conversion rate more on mobile (CMGE initiation). On the other hand, we noticed that mobile games with pirated versions of One Piece and Naruto are already in the market. CMGE may need to come up with innovative game play to attract users.
Fine-tuning estimates; retain Buy and target price-We keep 2014/2015F sales largely unchanged and raise non-GAAP net profit by 14% and 6%, respectively, due to better operational leveraging. Offset by diluted shares from the follow-on offering, 2015 non-GAAP EPS is USD$2.47, which gives us our TP of USD32 (unchanged), based on an 2015F P/E of 13x, the average from seven game peers.
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