Luo Shi Securities cut grand game performance expected to maintain neutral rating

News and Technology August 28, Luo Shi Securities released today on the Grand Game Quarterly performance report. The company reported disappointing second-quarter results in 2012, maintaining its "neutral" stock rating and lowering its target share price to $3.5 trillion.

The following are the main elements of the report:

Given the disappointing second-quarter results of the Shanda games and the weaker third-quarter guidance forecasts, we have lowered expectations for future performance. The company's biggest two franchise games (legends and legends) continued to slide in the second quarter, and the third game, the Valley of Dragons, unexpectedly slipped. It announced that its CEO, Tan, had resigned from his job due to health problems and poor performance. We maintain the "neutral" stock rating of the Grand game, lowering its target share price to $3.5 trillion.

Second quarter performance points

Revenue of 178.7 million U.S. dollars (down 19.3%, down 16.6%), in line with the quarter-on-quarter decline of 15% to 20% of the company's guidance forecasts, but less than the expected 180.4 million U.S. dollars and the market average expected 182.7 million dollars, because the network game business performance than expected to weak, the The "Dragon Valley" income unexpectedly showed a 40% quarter-on-quarter decline. Due to the control of management cost, operating profit margin of 31.4%, more than the Luo Shi Securities and the average market expectations of 30.5%. Earnings per share of 0.17 U.S. dollars, in line with the average market expectations, but less than the expected 0.18 U.S. dollars.

Performance Outlook

Grand games are expected, since the legend and the legendary World (56% of the company's revenues) will continue to weaken, third-quarter revenues will fall 4% to 5% per cent, less than Rosslare Securities and markets (4% to 7%), and non-US GAAP operating margins will fall by 1.5%-1.6%. We expect the Rift and Final Fantasy to be launched in 2013, but the two games will not be a blockbuster, and the profit margins for Shanda will be further undermined by the fees associated with their licences.

Expected adjustments

In view of the continued downturn in the old game, "Dragon Valley" There is uncertainty, we will be the future performance of the grand game has been lowered.

For the third quarter of 2012, assuming average revenue per user (ARPU) fell by 4%, and monthly pay subscribers (MPU) were flat, we expect the company to achieve revenue of $170.8 million (4.5% down the chain), Earnings per share of 0.16 U.S. dollars (previously expected to be 186 million U.S. dollars and 0.17 U.S. dollars).

For the year 2012, we expect Shanda to achieve revenue of $747.4 million, earnings per share of 0.71 U.S. dollars, operating profit margin of 30.3%, before the forecast of 782 million U.S. dollars, 0.73 dollars and 29.8% respectively.

For the year 2013, assuming growth was accelerated in the second half (up 18% year-on-year), we will reduce the company's revenue forecast to 789.5 million U.S. dollars (up 5.6% , previously expected to be USD 847.1 million), but the profit margin of royalties will decline, with earnings per share of $0.76 (previously expected to be $0.87).

Balance sheet and cash flow

As of the second quarter of 2012, Shanda had $645 million trillion in cash, 363 million in debt, a net cash amount of $282 million, higher than $267 million in the first quarter, and a net cash of $1.01 per share ads (US depository shares). The company's second-quarter operating cash flow of 72 million U.S. dollars, capital expenditure of 3 million U.S. dollars, free cash flow of 70 million U.S. dollars. We expect that, assuming 2013 years without dividend, Shanda games 2012 and 2013 free cash flow will be 251 million U.S. dollars and 225 million U.S. dollars respectively, the net cash per share ads (US depository shares) is 1.38 U.S. dollars and 2.19 dollars respectively. The company plans to buy back $100 million in shares from June 2012 to June 2013, and as of August 24, 2012, it bought 14.2 million of dollars of shares at an average of $3.6 for ads per share.