U.S. stocks lower as investors rotate out of tech ahead of Jackson Hole
Citi has updated its stance on Kingnet Network Co Ltd (002517:CH), with a price target reduction to RMB12.00 from the previous RMB13.00, while sustaining a Buy rating for the company's stock.
The adjustment follows Kingnet's second-quarter 2024 revenue report, which showed a 22% year-over-year increase to RMB1.25 billion. This performance aligned with market expectations and was fueled by the consistent success of existing game titles and a significant 335% year-over-year increase in overseas revenues during the first half of the year, now accounting for 5% of the total revenue mix.
Kingnet's profit for the quarter, however, did not meet market forecasts, falling short by 9% at RMB383 million. This was largely due to higher upfront marketing expenses related to the introduction of new games, resulting in some game revenues being deferred and not fully recognized at present.
Despite this, Kingnet's interim dividend distribution of RMB0.1 per share matched expectations and continued the company's pattern of a strong shareholder return policy established in 2023.
Looking ahead, Citi anticipates that Kingnet's international revenue will become a more significant contributor to the company's top-line growth. The projection is based on the planned expansion of games such as Sword and Fairy, MU3, Monster Go!, and Overlord into additional regions.
However, this expansion is also expected to impact profit margins due to potential increases in sales and marketing (S&M) expenses associated with these new game launches.
The firm's revised price target is derived from a valuation of 12 times the estimated earnings per share (EPS) for the year 2025, which is projected to be RMB0.99.
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