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Meisheng Cultural &Creative Corp.:Optimizing animation industrial chain and building animation media group

发布时间:2016-07-29    研究机构:瑞银证券

The animation industry is in a high-development stage

The animation industry's success model is to form an industrial chain focusing on IPs:promoting them with broadcasting and performance and making a profit on derivatives(70% of the global animation industry's production value is from derivatives). China'sanimation output had a CAGR of 30.4% in 2001-13 with policy support and replacedJapan to become the largest in the world. In 2014, China's animation production valueexceeded Rmb100bn, up 15% YoY. However, that was still less than 10% of that ofJapan and 5% of that of the US in 2012. The industry entered a consolidation andtransformation period in 2010: an emphasis on premium products prompted theindustry to pay more attention to per-unit output, which continued to improve in 2010-12.

Corporate strategy: Continue to optimize animation industrial chain via M&A

The company has extended into the upstream/downstream sectors along the animationindustrial line since 2013. It acquired Dishun Technology, Xingmeng, a Dutchdistributor for animation products, kumi.cn (an animation video website) andjoyreach.com (a game service platform), forming a preliminary integrated animationindustrial chain from proprietary animation originality, production, distribution andoperation to derivative design and online & offline sales channels. We expect thecompany to enhance its presence along the industrial chain: acquiring/investing inanimation originality companies, partnering with satellite channels, etc. We expect itsrevenue to grow 65%/40%/35% YoY in 2016-18E.

Outlook: Animation derivatives & game revenue likely to sustain high growth

We expect the company's animation derivative revenue to grow 30%+ YoY in 2016-17E, driven by its JV with JAKKS, obtaining the position of exclusive toy supplier basedon the movie Warcraft and with the gradual launch of seasons 2 and 3 of itsproprietary animation, Magic Star Academy. We expect its game business profit togrow 30%+ in 2016-18E and gross margin to continue rising during the same period.

Valuation: Lowering price target to Rmb45; maintain Buy

As the sluggish European economy may have a negative impact on the company'sanimation derivative product exports, we are lowering our 2016-18E EPS to Rmb0.52/0.75/1.04 from Rmb0.57/0.83/1.15 and derive our new price target of Rmb45 (fromRmb48.4) based on DCF methodology (WACC 8.5%). We maintain our Buy rating.

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