Hold Rating
|
Price |
USD $22.83 |
|
52-Weeks Range |
$15.05 -$44.68 |
|
Average Volume (3M) |
265,308 |
|
Shares Outstanding |
27.59 MN |
|
Market Cap |
629.93 MN |
|
ML Symbol /Exchange |
NCTY |
|
P/E (ttm) |
13.60 |
|
EPS (ttm) |
1.68 |
|
Div & Yield |
N/A |
|
ROE (TTM) |
11.76% |
|
Beta |
1.59 |
|
PEG (5 yr expected) |
0.48 |
|
Total Debt to Equity (MRQ) |
N/A |
|
% Owned Institutions |
35.30% |
We recommend a hold rating on The9 Limited. The9 Ltd is the leading online game operator and developer in China. Its main revenue drivers are affiliates operates licensed MMORPGs (massively multiplayer online role-play games) consisting World of Warcraft (WoW), Soul of Ultimate Nation (SUN), and Granado Espada (GE). During Q2 of FY2008, the company achieved excellent financial results due to the rising revenue from WoW and SUN. It also spent huge efforts in R&D and international affiliation. However, the results of those efforts are not foreseeable in the near future. The9’s limitation in self-developed game pipelines meant the company may suffer threats from its competitors such as Shanda and Netease. Furthermore, each game has its life cycle, The9’s over reliance on WoW may limit its future earning ability.
Rising Demand in Asian Online Gaming Market
Electronic Arts (EA) Inc. predicted that Asia Pacific’s software market will grow from over $8 billion in 2007 to $12 billion by 2010 with online and mobile games as main drives.
The9’s Transformation to R&D Company
The9 has set up a 200 people R&D team and has planned to launch at least five self-developed online games at the end of 2008. Furthermore, The9 Ltd invested USD$38 million in G10 Entertainment Inc. to co-develop Audition.
International Affiliation and Promotion
The9 Ltd formed a joint venture with Korean online game developer T3 Entertainment Co. Ltd. It also engaged in developing overseas market with its self-developed game pipeline- Joyful Journey West.
Current Marketing and Development Strategy
The9 Ltd, Blizzard Entertainment and China Merchants Bank entered an agreement to jointly issue credit cards featuring WoW to promote the brand image. The9 Ltd also aims to diversify its game pipeline by launching other new online games series such as Audition2 and FIFA Online2.
Strong Financial Performance
The9 Ltd’s Q2 2008 net revenue increased 69% YoY to RMB455.1 million and net income rose 129% YoY to RMB50.6 million. Fully diluted earnings per share stood at RMB4.19 compared with RMB1.90 a year earlier.
|
Key Income Statement Data |
Q2
2008 |
Q1
2008 |
Q4 2007 |
Q3
2007 |
Q2
2007 |
|
In Millions CNY |
|
|
|
|
|
|
Total Revenue |
455.1 |
439.4 |
423.7 |
316.0 |
270.0 |
|
Cost of Revenue |
(241.0) |
(231.4) |
(221.1) |
(183.8) |
(155.4) |
|
Gross Profit |
214.1 |
208.0 |
202.5 |
132.2 |
114.6 |
|
Total Operating Expenses |
(100.3) |
(94.0) |
(122.6) |
(88.5) |
(74.5) |
|
Operating Profit |
113.7 |
114.1 |
79.9 |
43.7 |
40.1 |
|
Interest Income |
14.5 |
12.8 |
18.6 |
18.1 |
9.5 |
|
Other Net Income |
(4.7) |
(24.4) |
(17.2) |
(16.1) |
4.1 |
|
Pretax Income |
123.5 |
102.5 |
81.3 |
45.7 |
53.8 |
|
Provision for Income Taxes |
(7.0) |
(10.5) |
(6.7) |
(6.8) |
(1.1) |
|
Net Income After Taxes |
116.5 |
92.0 |
88.1 |
38.9 |
52.7 |
|
Loss on Equity Investment |
(0.6) |
(2.3) |
(2.0) |
(0.7) |
(2.1) |
|
Net Income |
115.9 |
89.7 |
86.0 |
38.2 |
50.6 |
|
|
|
|
|
|
|
|
Key Balance Sheet Data |
Q2
2008 |
Q1
2008 |
Q4 2007 |
Q3
2007 |
Q2
2007 |
|
In Millions CNY |
|
|
|
|
|
|
Cash & Equivalents |
1,427.7 |
1,783.7 |
2,215.3 |
2,076.2 |
2,087.0 |
|
Total Receivables, Net |
23.7 |
20.1 |
26.7 |
20.7 |
14.1 |
|
Total Current Assets |
|