Kunlun Tech Co.Ltd(300418) game business has built a foundation, continued M & A and created a new growth pole

\u3000\u30 Beijing Telesound Electronics Co.Ltd(003004) 18 Kunlun Tech Co.Ltd(300418) )

Key investment points

Recommendation logic: 1) the company's strategic investment in opera and Star Group achieved consolidation. In the first half of 2021, the revenue of star maker increased by 232% to 690 million year-on-year, the net interest rate was 13.9%, the cumulative number of global users exceeded 100 million, and the leading advantage became more and more obvious; 2) The revenue of opera search business in 2021 was US $250 million (+ 52.1%), building the second growth curve with star maker; 3) The business segments are closely linked, and "information distribution + Voice social networking + Leisure and entertainment + Mobile Games + technology equity investment" go hand in hand. In the first three quarters of 2021, the non net profit was deducted by 1.9 billion yuan, an increase of 55.6% at the same time, with a good profit level.

Star maker leads the social trend of karaoke, and the leading advantages of overseas audio social platforms are becoming more and more obvious. Star maker, the main product of star group, is the leader of overseas audio social platform. It takes online karaoke as the main starting point and cuts into online entertainment scenes such as voice chat room, live broadcast and leisure games. At the same time, by introducing the family operation system, users form a close community relationship within the platform, improve the stickiness of the platform and the sense of belonging of users, improve the innovation efficiency and user retention rate, and effectively reduce the cost of getting customers. In 2021h1, the revenue was 690 million (+ 232%), and the net interest rate was 13.9%. The leading advantage is becoming more and more obvious.

The foundation of comprehensive entertainment platform is built, and self-developed games accelerate the thickening of performance. In 2021h1, the revenue reached 392 million yuan, mainly from overseas business, covering advantageous markets such as Europe, America, Japan, South Korea and Southeast Asia. At the same time, a variety of games are being developed and will be launched in succession within two years. In terms of China's game entertainment, leisure and mutual entertainment, deeply cultivate the chess and card entertainment track in the sinking market, and launch the room card mode to realize stable growth. In 2021h1, the company achieved a revenue of 490 million yuan, a net profit of 330 million yuan, a net interest rate of 67%, and a market share of real estate cards, chess and cards of 29%, ranking second in the same type of industry. Based on the traditional strong business sector, the company's Ark games and leisure entertainment show strong resilience and sustainable development ability. In terms of sea games, ark games game platform consolidated the company's basic business, developed new products and ensured performance growth.

Comprehensively layout the Internet Ecology, cut into the meta universe and develop new businesses. Search and advertising services connect the Internet Ecosystem, focus on the browser divergent business layout, and form a multi business divergent closed-loop system with opera browser as the main body, news distribution business as the guide, and the deep combination of game business and browser. In 2021, opera's search business achieved a revenue of US $250 million, a year-on-year increase of 52.1%. At the same time, players can start the original game with one click through the opera GX browser. Developers using GMS can release the game on the GXC platform with one click, organically combine game players and developers, build a player community ecology in an all-round way, improve user stickiness, and the subsequent performance is worthy of attention.

Profit forecast and investment suggestions. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be 1.77 billion yuan, 1.84 billion yuan and 2.05 billion yuan, corresponding to 11 times, 11 times and 10 times of PE respectively. The company's star group maintained strong growth, opera recovered strongly from the epidemic, and other businesses also maintained a high growth rate, showing a healthy and upward development trend as a whole. According to the segment valuation, the target market value of the company in 2022 is 26.53 billion yuan, corresponding to the target price of 22.15 yuan. It is covered for the first time and given a "buy" rating. It is recommended to pay attention.

Risk tip: policy risk in the game industry, the risk of intensified market competition, the risk that the M & a business is less than expected, and the user growth is less than expected.

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