Target price : Bt8.60
Recommendation : BUY
Closing Price (13 March 09) : Bt6.90
More new games to be launched in 2009 and profits from overseas operations likely to recover
- Online game firm AS posted a 2008 net profit of Bt185.13m, down 27.01% YoY. Huge expenses for the opening of the new office in
Malaysia and below-target revenues from new games were chiefly blamed for the profit slide. AS also announced a 2H08 dividend of Bt0.32/share, taking the full-year dividend to Bt0.63/share. The stock will trade ex-dividend (XD) on Mar 24, 2009.
- This year, AS plans to (i) to launch 5-7 new games in Thailand and release eight games overseas, (ii) seek new revenue stream from online advertising, and (iii) look at inorganic growth opportunities through acquisitions of other online game and website service companies.
- The expansion plan into the Philippines is expected to be concluded in 2H09. AS is also looking at opportunities to spread its wings into other countries. In 2Q09, AS plans to distribute @Cash prepaid cards in the Philippines and Indonesia, allowing gamers to login to published games' accounts to play games through servers in Malaysia and Singapore.
- We cut our 2009 net profit estimate to Bt210.04m. The new profit figure still implies a growth of 13.45% YoY as Malaysia's office starts to generate revenues in Mar. We also chop our 2009 price target to Bt8.60/share, equivalent to a P/E of 12x. Despite earnings and price target cuts, we reiterate a BUY stance on AS, based on strong share price upside from current levels and good dividends.
4Q08 profit far short of forecast
Online game firm AS posted a revenue decline of 13.46% YoY in 4Q08 as a result of a drop in online game revenues from its Thai and overseas operations. Hacker attacks in 3Q08 were chiefly blamed for the drop in online game revenue at its overseas operations. Offline game revenues however jumped as high as by 208.80% thanks to the distribution of a new version of a massively multiplayer online game 'World of Warcraft III: Wrath of the Lich King.' Costs slipped 5.95% but administrative expenses climbed 11.54% as the opening of the new office in Malaysia pushed personnel expenses higher. The investment in Malaysia in 3Q08 dragged earnings performance from its overseas operations into the red in 3Q08-4Q08, a main culprit that pulled 4Q08 profit down as high as 65.65% YoY to Bt24.26m. Profits at its Thai operations however continued to grow 14.17% YoY.
For the whole of 2008, AS generated a net profit of Bt185.13m, down 27.01% YoY. The results came in much below our forecast of a Bt238.82m profit due chiefly to poor earnings performance from its overseas operations in 2H08 and below-target revenues from new games. AS also announced a 2H08 dividend of Bt0.32/share. The stock will trade ex-dividend (XD) on Mar 24, and the dividend is scheduled to be paid on May 12, 2009. This took the full-year dividend to Bt0.63/share. The figure translated into a dividend payout ratio of as high as 91.30%.
Catalysts for growth in 2009: (i) the planned launch of more new game titles to retain leading position in online game business, (ii) new revenue stream from low-cost online advertising, and (iii) inorganic growth opportunities through acquisitions of online game and website service companies
In Thailand, AS is the country's top online game operator with a 55-60% market share in terms of registered users and a 65-70% market share in terms of revenues. AS also owns a 99.99% stake in 'Fun Box,' which is the country's fifth largest online game provider. This year, AS plans to launch (i) 5-7 new games in Thailand with three games to be released in 1Q09, one game in 2Q09, one game in 3Q09 and two games in 4Q09, and (ii) eight games overseas with one game to be released in 1Q09, two games in 2Q09, four games in 3Q09 and one game in 4Q09. Though new game launches may run a risk, we believe the impact will be limited if any new games are unsuccessful, given that over 80% of its revenues would come from the previously launched games. AS would also seek new revenue stream from online advertising through its
subsidiary 'PlayPark,' which provides web ad services through web portals for 11 AS online games and its
website playpark.com. Though ad revenues are modest, costs are significantly low. This year, AS would also look at inorganic growth opportunities through acquisitions of other online game companies and website service companies following last year's takeover of 'Fun Box.' AS also plans to drive Fun Box's market share higher to become the country's third largest online game provider. Fun Box has an expertise in China's online games.
Expansion plan in the Philippines likely to be concluded in 2H09 with future plans to expand into other countries
Falling revenues in Singapore and Malaysia have prompted AS to delay its expansion plan into the Philippines for the time being, but the expansion is however expected to take place in 2H09. AS is also looking at opportunities to spread its wings into Australia, New Zealand and the Middle East, and would position Singapore as a hub for expansion. Currently, AS is looking at the possibility of distributing @Cash prepaid cards in the Philippines and Indonesia, allowing gamers to login to published games' accounts to play games through servers in Singapore and Malaysia. The plan is expected to be concluded in 2Q09 and would give AS a steady revenue stream from distribution of @Cash prepaid cards.
Cut in 2009 profit forecast
We slash our 2009 revenue forecast to Bt1,703.37m from a previous estimate of Bt1,837.92m. The new revenue figure still implies a growth of 7.31% YoY. Our new estimate assumes (i) a 35% drop in offline game revenues, reflecting the absence of the plan to distribute offline game like the 'World of Warcraft,' which generated revenues of Bt33m in 4Q08, and (ii) an 11% rise in online game revenues. We estimate 2009 net profit to rise 13.45% YoY to Bt210.04m, revised down from a previous estimate of Bt248.79m. In our view, earnings may likely remain weak in 1Q09 due to a lingering impact of high expenses from the opening of the new office in Malaysia in the first two months of 2009. The investment in Malaysian last year starts to generate revenues in Mar 2009, which would help cover expenses. To reflect lower earnings expectations, we chop our 2009 price target to Bt8.60/share, equivalent to a P/E of 12x. We also expect AS to pay a 2009 dividend of Bt0.63/share. Despite earnings and price target cuts, we reiterate a BUY stance on AS, based on strong share price upside from current levels and good dividends.
By Phillip Securities (Thailand) Plc. on Mar 16, 2009
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