CICC reaffirms grand games hold rating target price 3.6 USD

News and technology information Beijing time August 28, CICC International published a research report, reiterated the Shanda game stock "hold" (Hold) rating, but its target share price from 4.40 U.S. dollars down to 3.60 U.S. dollars.

The following is a summary of the report:

As a result of the continuing slowdown in the commercialization process and the postponement of key data sheets, Shanda played a weak performance in the second quarter of the 2012 fiscal year, as expected. Shanda Games in the quarter of the net income of 1.13 billion yuan, down 14%, the chain reduction of 19%, and our expectations are flat, but compared to the average estimate of the analyst lower 2.7%. Gross margin and operating profit rate of 62.4% (0.5%) and 31.4% (chain flat). Non-US general accounting standards net profit of 337 million yuan (12% chain), compared to the average analyst forecast 12%.

We believe that the net income of Shanda will continue to decline, the third quarter of fiscal year 2012 is expected to decline 5%, because the "nine yin Canon" revenue increase is unlikely to offset the slow pace of commercialization of core games.

In the last few quarters, we have seen the revenue diversification trend of Shanda games, the revenue contribution of legend 2 and the second quarter of the legendary world 2012 to below 50%, and we anticipate new client games that emphasize action or leisure play, and the release of a number of powerful games that fit the trend, Will drive the company's revenue growth for the 2013 fiscal year. However, in the agency business of Shanda Games, localization is still our most worrying problem. We also believe that Shanda Games will continue to use client-side game content and global collaboration to expand into the web and mobile gaming areas, but the revenue contribution is limited to medium and short term.

Grand Game appoints COO Zhang successor Tan as new CEO. This change will not affect the 3A strategy and operation of Shanda games.

We will be Shanda games 2012/2013 of non-US GAAP per share earnings forecasts from 0.89/1.00 USD to 0.81/0.88 USD. As we expect weak performance to continue into the third quarter and a substantial rebound is more likely to occur in the 2013 fiscal year, we cut the company's target share price from $4.40 to $3.60, or 4.5/4.1 times times the earnings for the 2012/2013 fiscal year. We reiterate the "hold" rating of the unit.

Risk Factors

The product cycle of legend 2, legendary world and Dragon Valley, and the release of new games have failed.