In the throes of strategic transformation, the perfect growth rate is lower than that of peers

(i) CICC February 1, 2012 released the first time to cover the Chinese online games industry research report, CICC gave the perfect world "neutral" rating, the target price of 11.75 U.S. dollars, the following is CICC's perfect World rating Summary:

The throes of a strategic transition

For the first time, we focus on the perfect World (PWRD). US) to give a neutral rating, 12-month target price of 11.75 U.S. dollars. The perfect World is one of the five biggest network game operators in China. The company specializes in 3D MMORPG independent development and operation, but also the Chinese online games export business leader.

The pain of the transition: The company's initiative to reduce some of the main online games in the promotion and activities, the perfect World 2011 3 Quarter net income and user numbers fell sharply. While several of its core games may rebound at a 2011-year or 2012-year bottoming, we think the company's revenue growth in 2012 will be much lower than the industry's. However, we believe that after the company's strategic transformation, more focus on the quality of the game and operational efficiency and so on, the perfect world performance will be a large reversal.

Waiting for the "smile": Because the "Days of the Dragon slaughter" in the period of the closure of the average performance, the perfect world is still looking for opportunities to break through the 2D client game market bottlenecks. At the same time, we are more optimistic about the perfect world in the 3D game performance. Because the original novel is already well-known and the company has the industry-leading 3D game development capabilities and operating experience, we are about to launch the 3D MMORPG "Smile proud" market prospects are quite optimistic.

Online game export momentum is increasing: the perfect world at present through subsidiaries and agents in more than 100 countries and regions to carry out the operation of online business. We anticipate a quarterly growth in overseas market earnings in the 4 quarter of 2011, driven by significant seasonal factors and the continued expansion of major overseas markets.

Investment advice and risk

We expect the perfect World 2011, 2012 and 2013 earnings per share (based on non-US GAAP) to be 3.04 US dollars, 3.18 dollars and 3.55 dollars respectively. Our target price of 11.75 dollars is mainly based on non-US GAAP 2012 years of 3.7 times times P/E, compared to the historical dynamic P/E ratio of 60%. We believe that, although in the near future, the strategic transformation process is more painful, but can help the perfect world ready to meet the domestic online games market growth opportunities. In addition, we have confidence in the Short-and long-term prospects of our overseas operations.

Downside risk: (1) The core game product loses market sentiment unexpectedly, (2) The overseas market income unexpectedly declines, (3) The competition intensifies causes the market share to lose.