Introduction: This report hopes to sort out the data such as the rate of return on investment and key financial indicators of listed Chinese game companies over the years, examine game stocks from different perspectives, establish a general framework for game stock investment, analyze the income differences between long-term and short-term investments of game companies, explore the sources of investment income, and elaborate the screening criteria of game targets from the perspectives of Finance and products.
Long term vs short term: select 25 game companies listed in Hong Kong stocks, US stocks and a shares, and compare them respectively. 1) since listing; 2) 2017 to present; 3) Since 2020, the market value of each company has increased or decreased in three time dimensions. Among them, there are only two companies that have been listed for more than five years and have an annual return of more than 15% in recent five years, namely Netease and G-Bits Network Technology(Xiamen)Co.Ltd(603444) . In the past two years, the high-yield targets are mainly small and medium-sized enterprises with market value, and the companies with annual income of more than 15% are Netease, Kingnet Network Co.Ltd(002517) , heart company, Shenzhen Zqgame Co.Ltd(300052) , friendship time, Wuxi Boton Technology Co.Ltd(300031) . Conclusion: if there are certain requirements for short-term yield, the best way is to track the changes of the enterprise, buy new projects and fulfill the expected targets at the relative bottom of the valuation. Investment in the subject matter of the head game can be involved in a reasonable valuation. Obtaining income in the short term is not necessarily the best choice, but it is the best choice in the long run.
Beta or alpha: 1) the share price of game companies fluctuates in high frequency and wide range, repeatedly hovering between overestimation and underestimation; 2) A shares have volatility. The share price of game stocks fluctuates violently, especially for small and medium-sized companies. The core is determined by their business model. When new projects are successful, it often drives the company’s EPS and PE to rise in the short term. In the short term, the market tends to optimistically estimate the company’s R & D strength and give too high valuation level and product profit expectation. Once the product starts to perform less than expected, EPS and PE will fall again, The stock price of game companies often hovers back and forth between overestimation and underestimation.
The data show that A-share game companies show more sector market with the same rise and fall, and there are fewer opportunities for individual stocks to separate from the sector. The PE fluctuations of individual stocks in the Hong Kong and US markets are not significantly synchronized, and have a higher correlation with their own business development rhythm. Conclusion: the overall stock price of game companies fluctuates in a short-term, high-frequency and wide range, and converges to fundamentals in the long term. On the one hand, although some targets have poor returns in the long run, it does not prevent them from participating in obtaining excess returns when there are product changes and undervalued values in the short term; On the other hand, the investment of A-share game target needs to consider more beta factors, especially when the shareholding cycle is short, we think we also need to consider sector catalytic factors.
Target screening: the core is the ability of the company to continuously and stably earn cash flow, which is observed from both ends of Finance and products. 1) Financial side: We selected 18 companies and compared the annual year-on-year growth of net operating cash flow per share. From 2018 to 2021, only G-Bits Network Technology(Xiamen)Co.Ltd(603444) one company maintained year-on-year growth in four years. The companies that achieved year-on-year growth in three years include Tencent holdings, Netease, Zhejiang Jinke Tom Culture Industry Co.Ltd(300459) . In addition, the net operating cash flow per share of Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) significantly increased by 67.67% year-on-year in 2019, and fell by more than 10% in the next two years, From the data side, the business cycle of Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) is obvious. 2) Product power: from the two dimensions of new product quantity and ranking performance, “Tengwang”, G-Bits Network Technology(Xiamen)Co.Ltd(603444) , Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , Perfect World Co.Ltd(002624) has outstanding performance.
Investment suggestion: focus on Netease, G-Bits Network Technology(Xiamen)Co.Ltd(603444) and Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , see the text for specific logic.
Risk tips: 1) risk of delayed launch of products; 2) The risk that the performance of the product online is less than expected; 3) Industry policy and regulatory risks; 4) Risks related to forecast assumptions and data statistics
