Since last year, the domestic and global game market has been prospering rapidly and this momentum has continued into the first quarter. From the perspective of global game transaction scale, there were 280 open transactions within the game industry in the first quarter with a total value of US $39 billion, while the total transaction volume in 2020 was only US $33 billion, according to Investgame data.Because the blooming of the game trading market has gradually affected the stock market, secondary market research institutions have begun to explore the undervalued game stocks.
Recently, Anli released its first coverage research report, giving iDreamSky Technology (1119. HK) a "buy" rating. The target price is HK $7 per share, up to 63% from HK $4.3 per share on June 3.
According to the report, as iDreamSky Technology has moved up along the value chain of the game industry and has actively transformed into a game developer, it builds a long-life cycle ecology to form a closed-loop cash flow. Therefore, its user group is more valuable than those in the same industry. However, relatively speaking, the valuation of iDreamSky Technology is the lowest among its peers. Since iDreamSky Technology is seriously underestimated, it is optimistic about the company's future valuation.
01. The valuation is seriously undervalued with a potential increase of 65%
In the report, based on the strategy and progress of iDreamSky Technology, Anli has made forward-looking forecasts on the company's financial and valuation.
In terms of finance, previous iDreamSky Technology's monthly active users (MAU) and average per user income (ARPPU) have maintained a favorable growth trend. According to Anli's forecast, in 2021-2022, through strong game channel promotion, iDreamSky will achieve 3% / 5% Mau growth; thanks to the steady progress of medium and heavy games and the high average duration of leisure games, ARPPU's compound annual growth rate in the same period was 6%.
Based on the above forecast, in 2021-2022, the adjusted net profit of IdreamSky Technology will reach 266 million yuan and 368 million yuan. More importantly, after 2022, as Idreamsky Technology demonstrates and consolidates the synergy between online and offline ecological effects, high customer lifetime value (LTV) and high user stickiness will push the company into a real harvest period.
In terms of valuation, Anli believes that the customer base preserve a great value with the characteristics of high viscosity and high unit price. Because the P/E ratio valuation method can only reflect the short-term profitability of game developers, but incapable of reflecting the long-term user value, Amway adopts a more reasonable multiple of customer lifetime value (LTV) as the pricing index in the report.
By assuming ARPU x Mau = LTV, Anli compares the major companies in the same industry, and finds out that the LTV multiple and MAU market value of Idreamsky Technology are obviously undervalued.
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