Morgan Stanley: 5 new licensed games or new growth engines

Beijing Time July 29 Evening News, Morgan Stanley today issued an investment report to maintain a nasdaq:cyou "reduction" rating, the target share price from 23.80 U.S. dollars to 22.40 dollars. The report says 5 new licensing games from South Korea are expected to become a new growth engine for the PC gaming business.

The following is a summary of the contents of the report:

Acquisition Mobotap continue to pursue platform strategy: July 16, a cruise with Dolphin Browser mobile application developer Mobotap signed a final investment agreement, a cruise to 91 million U.S. dollars total cash on the purchase of Mobotap full diluted after 51% of the equity. In addition, the tour will be through the 0-coupon convertible bonds to the MOBOTAP to provide 30 million U.S. dollars of funds, convertible bonds five years due. During the period of unliquidated, the swimming reserves the right to exchange all or part of the unpaid principal at any time at the agreed price for the Mobotap, and if it is exchanged for all the bonds, it will eventually hold a 60% stake in the Mobotap after the completion of this transaction. We believe this underlines the determination to pursue a platform strategy. At the same time, this will lead to continued growth in sales and marketing spending. The deal is in line with a cruise platform strategy that may drive overseas commercialization, but there is a certain risk of implementation.

New licensing games can help offset current PC games and web-game downturns: 9 new PC games, including 5 licensed games from South Korea, were released at the Game+ Games Conference on July 16. Although not a big surprise, because the previous tour has revealed the relevant news, but several of these games are of high quality. We believe that these new games are expected to become a new growth engine for the PC gaming business. But based on history, the tour is not very successful in operating a licensing game.

Cut per share of diluted earnings expectations: we will be in the 2015 fiscal year and 2016 fiscal year revenue forecast to increase 3% to 5%, mainly thanks to the platform investment brought about by the growth of the non-game revenue. The projected earnings per share of fiscal year 2015 would be lowered from USD 4.19 to $1.91, and the projected earnings per share of fiscal year 2016 would be lowered from 5 to $3.59 to reflect higher marketing and research costs.

Valuation: We continue to maintain a "reduction" in the share of the stock, the target share price from 23.80 U.S. dollars to 22.40 U.S. dollars. (Li Ming)