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25 Jan, 2021 (Monday)

            
ARCHOSAUR GAMES(9990)
Analysis¡G
ARCHOSAUR GAMES (9990) is a gaming company, mainly focusing on mobile MMORPG development. The Group had launched 14 mobile games with over 60 regional versions in 14 languages available in more than 170 regional markets, such as Hong Kong, Macau, Taiwan, Southeast Asia, South Korea, Japan, Europe and the Americas. To build up a diversified game portfolio across a wide range of genres, the Group expects to launch 8 mobile games domestically and globally over the period from 2020 to 2022, covering the genres of MMORPG, SLG and others. (I do not hold the above stock)
Strategy¡G
Buy-in Price: $22.00, Target Price: $24.50, Cut Loss Price: $20.50




Weimob Inc. (2013.HK) - SaaS product upgrade to optimize functions, while the increase in price accelerates the company's growth

Investment Summary

The functions of SaaS products are upgraded along with the price increase

Weimob announced on its official website on January 5, 2021 that in order to further effectively help merchants in their digital transformation, the functions of Weimob e-commerce and retail SaaS products will be upgraded. The followings are the detail of the upgrade.

Wei Mall:

1) The name and price of the basic version are maintained, while the page decoration, interactive marketing and other functions are upgraded.

2) The standard version is renamed as premium version and a variety of marketing plugins are added, including ¡§Periodic Purchases¡¨ (¶g´ÁÁÊ) (buyers place an order once, and merchants can deliver multiple shipments to buyers, in order to help merchants to increase their customers` value, increase GMV, and reduce marketing costs) and ¡§One Code Multiple Use¡¨ (¤@½X¦h¥Î) and etc. The price of the version was increased from RMB 9800/year to RMB 12800/year.

3) The premium version is renamed as deluxe version, while sales channels, memberships management, customer analysis, advanced marketing, store promotions and other function are upgraded. The price was increased from RMB 16800/year to RMB 19800/year.

Smart Retail:

The name of the standard version remains unchanged, but on the basis of the original functions, a new store management account has been added and the ability of limited snap-up purchases (­­¶q·mÁÊ) and independent store creation functions (ªù©±¿W¥ß³Ð«Ø) have been upgraded.

We believe that the above product iteration will not only enrich the functions of the company's SaaS products, but also effectively help businesses increase their GMV and digital transformation. Since the price increase of the products are based on the enhancement of functions and are mainly aimed at mid-to-high-end merchants, considering the price increase of China Youzan (one of the company's main competitor) at the same time period and the strong paying ability of the company's mid-to-high-end merchants, we believe the price increase will not have a huge impact of the company's merchant retention and acquisition ability, but is likely to further increase the company's future ARPU and accelerate the company's future growth.

Wei Mall and Smart Retail's access to WeChat's Channel Live-streaming (µøÀW¸¹ª½¼½)

WeChat has made some huge upgrades to its short video function, Channels (µøÀW¸¹), at the end of 2020. 1) For Channels live-streaming (µøÀW¸¹ª½¼½), microphone, live filter (¬üÃC¥\¯à) and donation functions have been added, and shopping cart function is shown on the live streaming. 2) Added two traffic entrance for Channels (µøÀW¸¹) with the aim to divert more user traffic to Channels. Before the Channels (µøÀW¸¹) went live, even though Wechat built its business ecosystem by launching Wechat mini-program, but it always lacked the tool to effectively divert its 14 million MAU user traffic to its business ecosystem. We believe now with the launching of Channels (µøÀW¸¹) and the recent big function upgrade mentioned above, the previous shortcomings of lacking traffic diversion for its business ecosystem has been solved and allows huge user traffic be diverted into the Wechat's e-commerce business ecosystem in the form of short videos promotions and e-commerce live streaming.

On December 15, 2020, Weimob announced that its smart retail and Wei mall solutions can be connected to channels live-streaming (µøÀW¸¹ª½¼½) soon and this function is currently in the stage of internal testing. After the launch of this function, merchants can conduct e-commerce live streaming (ª½¼½±a³f) on WeChat channels (µøÀW¸¹) and merchants can also insert a link to its Wechat Weimall on the short-video published by their corporate Channel account (¥ø·~µøÀW¸¹). We believe that the launch of the Channels (µøÀW¸¹) and the recent feature upgrade are expected to further accelerate the growth of Wechat's e-commerce ecosystem, while improving the efficiency of private traffic management. As the main partner of Wechat's e-commerce ecosystem and advertising business, Weimob definitely benefits from this.

Internationalization strategy is beginning to show off

Recently, Weimob announced the launch of an international strategy, dedicated to helping overseas brand merchants to build mini-program store that directly faces Chinese consumers. At present, the company has reached cooperation with a number of well-known overseas brands, including the well-known Japanese chain drugstore One's Life Japan (¤@¥Í¬ü) and the top Japanese department store Kintetsu Department Store (ªñÅK¦Ê³f). The company's Weimall solution can help overseas merchants simplify the shopping process. On the other hand, it also provides a number of marketing and private management methods that are in line with Chinese consumers` online shopping habits. We believe that for overseas brand merchants, the company's mature Weimall solution is one of the most cost-effective solutions for entering the Chinese market. Weimob stated that its internationalization strategy is one of its main long-term strategy and that it will increase investment in international business in the future. We believe that international business is expected to become a major growth driver for the company in the future.

The three major strategic directions in the future ¡V high-end merchants, ecological and international strategies

The company's management launched investor day in Shanghai on 15th of Jan 2021 and has stated that they will focus on three major strategic directions in the future.

1) High-end merchants` strategy - The company's high-end merchants` strategy has achieved remarkable results in 2020. In 2020, the renewal rate of smart retail merchants reached 95%, and the proportion of merchants that upgraded their SaaS version was as high as 32%, which fully demonstrates the high stickiness of high-end merchants. On the other hand, the company's management expects that the number of high-end merchant can maintain a growth rate of about 200% in 2021, and the ARPU of high-end merchant can reach RMB 500,000 in 3-5 years (the ARPU of high-end merchant in 2019 was about RMB 200,000)

2) Ecological strategy - In the future, the company will focus on expanding the traffic ecology (including the expansion of multiple platforms), developer ecology and investment ecology.

3) International strategy - The company will speed up its international layout to create a complete one-stop cross-border e-commerce solution. At present, the company hasreached cooperation with 34 international channel partners and has more than 300 international customers. In the future, the company intends to set up direct sales teams in key overseas countries to expand overseas customers.

Valuation

Considering 1) the price increase of the company's mid-to-high-end SaaS products 2) that the SaaS products can potentially attract more merchants because of the products` recent access to Wechat Channel (·L«HµøÀW¸¹), QQ browser (QQÂsÄý¾¹) and Alipay, we increase the company's forecasted SaaS revenue for 2021E/2022E to RMB 1.29/1.75 billion (+33%/+28%) (including the consolidation of Heading Information's revenue), respectively, while maintaining the forecasted revenue of the targeted marketing business segment. We increase the 2021E/2022E forecasted adjusted profit attributable to parent to RMB 274/404 million (+16%/+11%).

We have rolled over the SOTP valuation to 2022. After considering that 1) the market attention to the sector has increased hugely recently 2) the new growth opportunities brought by the recent connection with multiple traffic platform 3) the effectiveness pf the company's international strategy, we upgrade the target PS of SaaS segment to 23x and maintain target PE of targeted marketing at 18x. We raise the TP to HKD 28.20, with respective 2020E/2021E/2022E adjusted PE of 355.3x/194.8x/132.3x. Corresponding to the current stock price, we downgrade the rating to ¡§Accumulate¡¨. (Market closing price as of 21 Jan) (exchange rate: RMB 0.84/HKD)

Risk

1) The expansion of SaaS customers is worse than expected 2) The increased industry competition 3) Advertising demand is less than expected 4) Targeted marketing business mainly relies on the cooperation with Tencent

Financial Statements

Click Here for PDF format...




Recommendation on 25-1-2021
RecommendationAccumulate
Price on Recommendation Date$ 24.600
Suggested purchase priceN/A
Target Price$ 28.200
Writer Info
Kevin Chiu
(Research Analyst)
Tel: +852 2277 6514
Email:
kevinchiu@phillip.com.hk

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