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1、8.0,7.0,6.0,5.0,1,2,Deutsche BankMarkets Research,RatingHoldAsiaChina,CompanyShanda GamesLimited,Date27 November 2012Results,TechnologySoftware&Services,Reuters,Bloomberg,Exchange Ticker,Price at 26 Nov 2012(USD)Price target-12mth(USD)52-week range(USD),3.203.705.89-3.18,GAME.OQ,GAME US,NMS,GAME,HAN
2、G SENG INDEX,21,844,Aging legacy games dampen growth,visibilityUninspiring 2013 outlook;Retain HoldWith revenue from legacy games(Mir 2 and Woool)still accounting for 49%oftotal revenue in 3Q12,we view the performance of these two games as thelargest potential downside risk to our already lackluster
3、 2012 top-line growthforecast(3%YoY).Although Shanda Games 2013 game pipeline is ofreasonably good quality,we expect revenue growth from other relatively newgames to be largely offset by the decline of these two games in 2013.3Q miss on expenses3Q EPADS was RMB0.92,11%below our forecast and 10%below
4、 market,Alex YaoResearch Analyst(+86)21 2080 Alan Hellawell IIIResearch Analyst(+852)2203 Key changes,consensus.The earnings surprise was largely attributable to increasingoperating expenses(RMB404m in 3Q vs.RMB351m in 2Q),driven by 1)higher-than-expected product development expenses due to an annua
5、l salaryincrease for R&D personnel,and 2)higher-than-expected sales and marketingexpenses for prepaid cards distribution and marketing as well as summerpromotions.3Q top-line was in line with our estimate and consensus.,Price targetSales(FYE)Op profmargin(FYE)Net profit(FYE),4.04 to 3.70 4,730 to 4,
6、690 30.4 to 29.2 1,249.3 to 1,142.5,-8.4%-0.8%-4.1%-8.6%,Uninspiring 2013 outlookWe believe Shanda Games two legacy games have been losing traction since3Q11.We expect revenue from the two games to decline by RMB700m in2012 and RMB300m in 2013.Relatively new games(i.e.Dragon Nest andAION)are in the
7、middle of their life cycles and are content-driven.Contributionfrom new client-based game launches is the key for top-line growth in 2013.,Price/price relative,Maintaining Hold and cutting target price to US$3.7We cut our target price by 8%on soft 4Q guidance and an uninspiring 2013outlook.We base o
8、ur target price on a PEG of 0.8x,2013-15E EPS CAGR of6%,and 2013E non-GAAP EPADS of US$0.78.The revised target price implies,4.03.011/10,5/11 11/11Shanda Games LimitedHANG SENG INDEX(Rebased),5/12,a 2013E PE of 4.7x.Up/downside risks:game performance and regulation.(See p.7)Forecasts And Ratios,Perf
9、ormance(%)AbsoluteHANG SENG INDEX,1m-5.31.5,3m-3.910.0,12m-20.023.6,Year End Dec 31Sales(CNYm)EBITDA(CNYm)Reported NPAT(CNYm)Reported EPS FD(CNY)DB EPS FD(CNY)OLD DB EPS FD(CNY)%ChangeDB EPS growth(%)PER(x)EV/EBITDA(x)DPS(net)(CNY)Yield(net)(%),2010A4,504.71,575.71,288.94.524.894.890.0%-12.99.37.00.
10、000.0,2011A5,281.91,982.91,265.04.465.215.210.0%6.77.23.90.000.0,2012E4,690.11,775.51,142.54.104.625.00-7.5%-11.34.32.412.9464.9,2013E4,805.91,786.91,218.74.394.965.04-1.5%7.44.01.10.000.0,2014E5,024.91,915.21,286.24.645.235.40-3.1%5.33.80.30.000.0,Source:Deutsche Bank estimates,company dataDB EPS i
11、s fully diluted and excludes non-recurring itemsMultiples and yields calculations use average historical prices for past years and spot prices for current and future years,except P/B which usesthe year end close_Deutsche Bank AG/Hong KongDeutsche Bank does and seeks to do business with companies cov
12、ered in its research reports.Thus,investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors shouldconsider this report as only a single factor in making their investment decision.DISCLOSURES AND ANALYSTCERTIFICATIONS ARE LOCATED
13、 IN APPENDIX 1.MICA(P)072/04/2012.,N,24,27 November 2012Software&ServicesShanda Games Limited,Model updated:27 November 2012,Fiscal year end 31-Dec,2009,2010,2011,2012E,2013E,2014E,Running the numbers,Financial Summary,AsiaChinaSoftware&ServicesShanda Games Limited,DB EPS(CNY)Reported EPS(CNY)DPS(CN
14、Y)BVPS(CNY)Weighted average shares(m)Average market cap(CNYm),5.615.160.0010.127919,851,4.894.520.0014.128512,984,5.214.460.0011.828410,646,4.624.1012.9416.82795,684,4.964.390.0022.12775,684,5.234.640.0027.72775,684,Reuters:GAME.OQ,Bloomberg:GAME US,Enterprise value(CNYm),17,448,11,042,7,738,4,207,1
15、,919,479,Valuation Metrics,Hold,P/E(DB)(x)P/E(Reported)(x),12.713.8,9.310.1,7.28.4,4.34.9,4.04.5,3.84.3,Price(26 Nov 12)Target Price52 Week rangeMarket Cap(m),USD 3.20USD 3.70USD 3.18-5.89EURm 704USDm 913,P/BV(x)FCF Yield(%)Dividend Yield(%)EV/Sales(x)EV/EBITDA(x)EV/EBIT(x),6.908.90.03.68.810.1,3.09
16、12.00.02.57.08.3,2.1410.70.01.53.95.2,1.1825.264.90.92.43.1,0.9025.10.00.41.11.4,0.7226.40.00.10.30.3,Company Profile,Income Statement(CNYm),Shanda Games Ltd.,a subsidiary of Shanda InteractiveEntertainment ltd.,develops and operates online games inChina.It is in the process of selling its games ove
17、rseastoo.The company both internally developes its owngames,and licenses them from external developers.Price Performance8.07.06.05.04.03.0,Sales revenueGross profitEBITDADepreciationAmortisationEBITNet interest income(expense)Associates/affiliatesExceptionals/extraordinariesOther pre-tax income/(exp
18、ense)Profit before taxIncome tax expenseMinoritiesOther post-tax income/(expense)Net profitDB adjustments(including dilution)DB Net profit,4,8073,1281,990661901,73426001701,9304294901,4531261,579,4,5052,9101,576511921,33362002161,6103002101,2891061,395,5,2823,7351,9831713381,474135001721,7814853101,
19、2652131,478,4,6903,3601,7751222861,368114001281,6104244301,1421471,289,4,8063,3871,7871303021,355103001601,6183643501,2191581,377,5,0253,5431,9151423311,442103001601,7053843501,2861641,450,Nov 10Feb 11May 11Aug 11 ov 11Feb 12May 12Aug 12,Cash Flow(CNYm),Margin Trends4440363228,Shanda Games LimitedHA
20、NG SENG INDEX(Rebased),Cash flow from operationsNet CapexFree cash flowEquity raised/(bought back)Dividends paidNet inc/(dec)in borrowingsOther investing/financing cash flowsNet cash flowChange in working capital,1,870-961,7741,0570702-2,3631,170126,1,642-871,555-25600-1,526-22718,1,306-1621,144-186
21、00-668290-360,1,565-1641,4010-1,8043,093-8581,83186,1,557-1681,38800-3,788934-1,465-7,1,634-1761,458000181,476-13,Balance Sheet(CNYm),09,10,11,12E,13E,14E,Cash and other liquid assets,2,621,2,180,4,069,5,900,4,435,5,910,EBITDA MarginGrowth&Profitability50403020100-10-20,EBIT Margin,806040200,Tangibl
22、e fixed assetsGoodwill/intangible assetsAssociates/investmentsOther assetsTotal assetsInterest bearing debtOther liabilitiesTotal liabilitiesShareholders equityMinoritiesTotal shareholders equity,1401,09894614,328211,2811,3022,8202063,026,1951,840322,5336,780312,4902,5214,0202394,259,2311,555382,067
23、7,9599283,4144,3423,3462713,617,2601,545382,94110,6834,1461,5325,6794,6903155,005,2901,535382,0928,3893581,5411,8996,1413506,491,3221,525382,1799,9743581,5571,9157,6743858,059,09,10,11,12E,13E,14E,Net debt,-2,600,-2,149,-3,141,-1,754,-4,076,-5,552,Sales growth(LHS),ROE(RHS),Key Company Metrics,Solve
24、ncy0-20-40-60-80-100,Sales growth(%)DB EPS growth(%)EBITDA Margin(%)EBIT Margin(%)Payout ratio(%)ROE(%)Capex/sales(%)Capex/depreciation(x)Net debt/equity(%),42.361.441.436.10.074.22.00.4-85.9,-6.3-12.935.029.60.037.71.90.4-50.5,17.36.737.527.90.034.33.10.3-86.8,-11.2-11.337.929.2315.728.43.50.4-35.0
25、,2.57.437.228.20.022.53.50.4-62.8,4.65.338.128.70.018.63.50.4-68.9,09,10,11,12E,13E,14E,Net interest cover(x),nm,nm,nm,nm,nm,nm,Alex Yao,Net debt/equity(LHS),Net interest cover(RHS),Source:Company data,Deutsche Bank estimates,+86 21 2080 1666Page 2,Deutsche Bank AG/Hong Kong,27 November 2012Software
26、&ServicesShanda Games LimitedUninspiring 2013 outlookOutlook4Q guidance slightly below our estimateManagement guided flat 4Q revenue sequentially vs.our previous forecast of 4Q QoQgrowth.Meanwhile,the non-GAAP operating margin is likely to see a slightimprovement QoQ.The company expected 4Q SBC to b
27、e RMB14m and governmentsubsidies to be RMB50m.In terms of major online games,management expects MIR2 to remain largely flattish,while Woool and Dragon Nest are likely to see modest declines.MIR3 should hopefullyremain stable.Management also believes that overseas revenue will rebound in 4Qcompared t
28、o the previous quarter.Legacy games continue to lose tractionRevenue from legacy games(i.e.Mir 2 and Woool)continued to decline in 3Q toRMB529m from RMB554m in 2Q12 and RMB825m in 3Q11.Our channel checkssuggest that the popularity of these two games peaked in 3Q11 and has been decliningever since,wi
29、th no signs of stabilization.We attribute the soft performance largely togame aging.In the current market,we think these two games have little appeal to newgamers.We estimate revenue from Mir 2 and Woool will decline by RMB700m in 2012.For 2013,we expect revenue from these two games to decline anoth
30、er RMB300m.Webelieve Shanda Games has shifted more resources to keep loyal and hardcore gamersin the game.,Figure 1:Game revenue of MIR2 and Woool,Figure 2:Paying users as%of total active users,RMBm9008007006005004003002001000,70%60%50%40%30%20%10%0%,35%30%25%20%15%10%5%0%,4Q10,1Q11,2Q11,3Q11,4Q11,1
31、Q12,2Q12,3Q12,1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12,Game revenueSource:Deutsche Bank,company data,As%of total revenue(RHS),Paying Users as%of Total Active UsersSource:Deutsche Bank,company data,Platform usage declined in 2012 due to small number of new game launchesTotal monthly act
32、ive users(MAU),a metric we use to gauge platform usage,declinedby 12%YoY to 18.4m in 3Q,vs.a decline of 16%in the first nine month of 2012.Weattribute the usage decline largely to a smaller number of new game launches vs.2011and competition from other MMOs.We expect Shanda Games to launch more highq
33、uality games in 2013 than in 2012.As such,MAU is likely to recover in 2013.,Deutsche Bank AG/Hong Kong,Page 3,27 November 2012Software&ServicesShanda Games Limited,Figure 3:Average monthly active usersmillion3025,Figure 4:Average monthly paying usersmillion54,20315210,501Q10 2Q10 3Q10 4Q10 1Q11 2Q11
34、 3Q11 4Q11 1Q12 2Q12 3Q12Average Monthly Active UsersSource:Deutsche Bank,company data,101Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12Average Monthly Paying UsersSource:Deutsche Bank,company data,Relatively new games are lukewarmThe usage and monetization of relatively new games(i.e.Dragon
35、Nest and AION)arecontent-driven.Major content launches could significantly increase game popularityand revenue generation.For instance,revenue from AION increased strongly in 2Q as aresult of a major content update(version 3.0).Given that both games are scheduled tolaunch major content updates in 1H
36、13,we expect revenue from these two games to belargely flattish in 4Q12 and 1Q13.For 2013,we expect Dragon Nest to grow 5-10%driven by a new content release andgeographic expansion.We see potential upside to our growth assumption due tooverseas operation.As for AION,the next major content launch wil
37、l likely be in 2Q13,which should increase usage and monetization.Nonetheless,we expect the game todecline 0-5%in 2013 due to aging,competition and its revenue model.Newly launched Age of Wushu performing well but contribution is limitedOur channel checks suggest Age of Wushu is one of the best perfo
38、rming new gameslaunched in Chinas online MMO market in 2012.Its revenue contribution to ShandaGames,however,is insignificant,largely due to the revenue sharing agreement.Weestimate the game contributed 2-3%of total revenue in 3Q12.We expect its revenuecontribution to grow to mid-single digit in 2013
39、.Waiting for revenue contribution from new client-based gamesShanda Games has a reasonably good quality game pipeline for 2013.We think RIFTand Final Fantasy have the potential to become successful new game launches in 2013.However,a slowdown in the MMO market and the growing popularity of webgame a
40、ndmobile game add uncertainty as to how successful these games will turn out to be.Webgame and mobile game to provide incremental top-line growthRevenue from webgame and mobile game contributed insignificantly to the top-line in3Q.According to management,Shanda Games will increase the resources dedi
41、cated tothese two game genres in a controlled manner in the near future.We expect revenuefrom these two game genres to grow strongly in 2013 but remain insignificant to totalrevenue.3Q results reviewShanda Games booked 3Q EPADS of RMB0.92,11%below our forecast and 10%below market consensus.3Q top-li
42、ne was RMB1,081m(down 4%QoQ and 20%YoY),Page 4,Deutsche Bank AG/Hong Kong,27 November 2012Software&ServicesShanda Games Limitedin line with our estimate and 1%higher than consensus.The earning surprise waslargely attributable to increasing operating expenses(RMB404m in 3Q vs.RMB351m in2Q),driven by
43、1)higher-than-expected product development expenses due to an annualsalary increase for R&D personnel,and 2)higher-than-expected sales and marketingexpenses for prepaid cards distribution and marketing as well as summer promotions.3Q GM was 63.4%vs.our 62%estimate and consensus 62.5%,while non-GAAP
44、OMwas 30%,9%below our forecast.Share-based compensation increased from RMB3.9min 2Q to RMB11.5m in 3Q,driven by the repricing of underwater share options held bythe companys officers and employees.However,the increase was partially offset bythe decline of SBC due to the departure of senior executive
45、s.3Q online gaming revenue(RMB1,015m)beat our forecast(RMB989m)by 3%,butdeclined by 21%YoY and 2%QoQ.The sequential decline was primarily due to 1)arevenue decline from AION as the attraction of its expansion pack subsided(AIONsrevenue contribution dropped from 12%in 2Q to less than 10%in 3Q),and 2)
46、the de-monetization strategy for Woool to extend its lifecycle.With regard to the games key operating metrics,the company recorded monthlyaverage paying users of 3.5m in 3Q,down 8%QoQ.The decline was driven by freefunctions associated with the content updates.3Q ARPU increased by 6%to RMB95.7.Three
47、major games,namely MIR2,Woool and Dragon Nest,contributed 33%,16%and15%of total revenue in 3Q,respectively,while the revenue contribution of other gameswas below 10%.Other revenues,comprising revenues from overseas game licensing,game operationsand advertising in China,was RMB65m in 3Q12,down 27%QoQ
48、 and 9%YoY.Onlinegame revenue and other revenue accounted for 94%and 6%of overall revenue in 3Q12vs.92%and 8%in 2Q12,respectively.Figure 5:Quarterly earnings review,Unit:RMBm,3Q12(A)DB 3Q12(F),%Dif.,2Q12(A),QoQ Chg,3Q11(A),YoY Chg,(F vs.A),Net SalesGross ProfitOperating IncomeNet Non-Op IncomePBTNet
49、 IncomeReported EPS(RMB),1,080685281743552540.92,1,084672311683792881.03,-0.3%1.9%-9.8%9.1%-6.4%-11.8%-10.8%,1,131705354614163081.10,-4.4%-2.9%-20.8%21.4%-14.6%-17.7%-16.8%,1,353830361834443431.20,-20.1%-17.5%-22.4%-10.5%-20.1%-25.9%-23.8%,Margins,Gross MarginOperating MarginNet Non-Op MarginPBT Mar
50、ginNet Income Margin,63.4%26.0%6.9%32.8%23.5%,62.0%28.7%6.3%35.0%26.6%,62.4%31.4%5.4%36.8%27.3%,61.3%26.7%6.1%32.8%25.3%,Source:Deutsche Bank,company dataFigure 6:Revenue breakdown by product,Unit:(RMBm),3Q12(A),2Q12(A),QoQ Chg,3Q11(A),YoY Chg DB 3Q12(F)%Dif.(F vs.,A),MMORPGCasual gamesAdvertising a
