Equity Analyst, LightStream Research

Farha Sabri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<p>Friend times is a female-oriented mobile game developer planning to list on the Hong Stock Exchange on the 8<sup>th</sup> of October. The company predominantly operates in China with 3/4<sup>th</sup> of revenue coming in from this region. As a result, the company is one of the largest players in the female-oriented gaming segment in China. However, due to the fragmented nature of the industry, the company holds a share of less than 5% in the domestic market. Over the years, FriendTimes has expanded to other regions, mainly in Asia and the company plans to expand into Europe and Arabia in the next 1.5 years. These geographic expansions provide the company with immense opportunities especially in a segment not many mainstream gaming companies dabble in. FriendTimes has also grown revenue at a 2-year CAGR of 60% over 2016-18 with OPMs improving to 25% from 21% during the period. The company also possesses low gearing levels while its cash balances have been improving.</p><h2></h2><table class="table table-striped"><tbody>
<tr><td colspan="2" style="text-align: center; width: 486.5px;">
<h2><em>Details of IPO</em></h2>
<p></p>
</td></tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>New Shares Offered</p></td>
<td style="text-align: center; width: 216.5px;"><p>330,000,000</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Capitalisation issues</p></td>
<td style="text-align: center; width: 216.5px;"><p>1,818,340,000</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Existing Shares</p></td>
<td style="text-align: center; width: 216.5px;"><p>51,660,000</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Total Shares Outstanding</p></td>
<td style="text-align: center; width: 216.5px;"><p>2,200,000,000</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Offer as a % of Total Shares Outstanding</p></td>
<td style="text-align: center; width: 216.5px;"><p>15%</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Offer Price (HKD)</p></td>
<td style="text-align: center; width: 216.5px;"><p>1.52-1.96</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Trading Date</p></td>
<td style="text-align: center; width: 216.5px;"><p>8<sup>th</sup> October 2019</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>IPO Price - Midpoint (HKD)</p></td>
<td style="text-align: center; width: 216.5px;"><p>1.74</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Market Capitalisation (HKDm)</p></td>
<td style="text-align: center; width: 216.5px;"><p>3,828</p></td>
</tr>
<tr>
<td style="text-align: center; width: 486.5px;"><p>Enterprise Value (HKDm)</p></td>
<td style="text-align: center; width: 216.5px;"><p> 3,343.4</p></td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption">Source: Company Prospectus</div><div style="text-align: left;" class="content-caption">Note: The company has set aside 49.5m shares as an over allotment option. The above mentioned calculations have been made under the assumption that this option is not exercised.</div><p>On our estimates, FriendTimes is trading at an FY2 EV/OP multiple of 5.9x, which is at an immense discount to the peer average of 12.1x. Given the favourable financial performance and the steady line-up of games the company has in store alongside geographic expansions, we recommend a buy on the stock as it seems relatively cheap even at the higher end of its IPO price range.</p>

Friend times is a female-oriented mobile game developer planning to list on the Hong Stock Exchange on the 8th of October. The company predominantly operates in China with 3/4th of revenue coming in from this region. As a result, the company is one of the largest players in the female-oriented gaming segment in China. However, due to the fragmented nature of the industry, the company holds a share of less than 5% in the domestic market. Over the years, FriendTimes has expanded to other regions, mainly in Asia and the company plans to expand into Europe and Arabia in the next 1.5 years. These geographic expansions provide the company with immense opportunities especially in a segment not many mainstream gaming companies dabble in. FriendTimes has also grown revenue at a 2-year CAGR of 60% over 2016-18 with OPMs improving to 25% from 21% during the period. The company also possesses low gearing levels while its cash balances have been improving.

Details of IPO



New Shares Offered
330,000,000


Capitalisation issues
1,818,340,000


Existing Shares
51,660,000


Total Shares Outstanding
2,200,000,000


Offer as a % of Total Shares Outstanding
15%


Offer Price (HKD)
1.52-1.96


Trading Date
8th October 2019


IPO Price - Midpoint (HKD)
1.74


Market Capitalisation (HKDm)
3,828


Enterprise Value (HKDm)
 3,343.4

Source: Company ProspectusNote: The company has set aside 49.5m shares as an over allotment option. The above mentioned calculations have been made under the assumption that this option is not exercised.On our estimates, FriendTimes is trading at an FY2 EV/OP multiple of 5.9x, which is at an immense discount to the peer average of 12.1x. Given the favourable financial performance and the steady line-up of games the company has in store alongside geographic expansions, we recommend a buy on the stock as it seems relatively cheap even at the higher end of its IPO price range.

Chinese Game Developer Appears to Be Listing at Quite the Discount

FriendTimes Inc

Chinese Game Developer Appears to Be Listing at Quite the Discount