On margins, we forecast gross margin at 70.8% stable Y/Y; adjusted operating margin of 39.1% stable Y/Y and adjusted net margin of 31.0% also stable Y/Y.. Price Target, Valuation and Rat
Trang 1Our Estimates and Outlook for 2009
We forecast net revenue of US$652.7MM in 2009, up 27% Y/Y, and GAAP diluted EPS of US$2.69, up 11% Y/Y, or adjusted EPS (ex-share-based expense) of US$2.80, up 11% Y/Y We forecast MMORPG revenue of US$549.8MM in 2009 (84% of total revenue), up 29% Y/Y, and casual game revenue of US$80.6MM (12%
of total revenue), up 20% Y/Y
We forecast gross margin at 70.9% for 2009, slightly lower than 71.8% for 2008, adjusted operating margin (ex-share-based expense) of 39.3% for 2009, slightly lower than 41.1% for 2008, and adjusted net margin of 30.6% for 2009, down from 35.7% for 2008 (on higher effective tax rate of ~24% in 2009, due to Actoz – with higher tax rate in Korea – and Aurora combination)
Our Estimates and Outlook for 2010
For 2010, we forecast net revenue of US$736.2MM, up 13% Y/Y, and GAAP diluted EPS of US$3.05, up 13% Y/Y, or adjusted EPS of US$3.16, up 13% Y/Y We forecast MMORPG revenue of US$615.8MM in 2010 (84% of total revenue), up 12% Y/Y, and casual game revenue of US$93.8MM (13% of total revenue), up 16% Y/Y On margins, we forecast gross margin at 70.8% (stable Y/Y); adjusted
operating margin of 39.1% (stable Y/Y) and adjusted net margin of 31.0% (also stable Y/Y)
Price Target, Valuation and Rating Analysis
We maintain our Overweight rating on Shanda, which remains our top pick in the online game sector in China Our price target is US$35 (June-09), which implies 14.5x 2008E and 13.0x 2009E GAAP EPS, or 13.9x 2008E and 12.5x 2009E adjusted EPS Our price target is below our DCF valuation of ~US$55 (13% WACC, 0% terminal growth), due to the lower sector multiples Historically, the game sector has traded at a forward P/E of 10x-20x We believe Shanda can trade towards the mid-end of this range, due to upside potential to our estimates from successes in upcoming new games, and in-game advertising On the other hand, with general stock market weakness, the stock is not likely to trade at the historical high end of around 20x, in our view
Risks to Our Rating
Trang 2Table 210: SNDA Annual Income Statement
$ in millions
2007 2008E 2009E 2010E
Others (Includes Actoz revenue from 3Q07) 11.7 19.7 22.1 26.3
Sales & Mktg expenses -23.8 -45.6 -58.7 -66.3
123R share-based compensation -7.8 -8.0 -7.6 -7.6
Margins (%)
Adj Operating Margin (ex-share-based comps.) 43.1 41.1 39.3 39.1
Adj Net Margin (ex-share-based comps.) 41.8 35.7 30.6 31.0
Sequential Growth (%)
Net Profit (ex-share-based comps.) 116.2 34.2 8.9 14.0
Adj Diluted EPS (ex-share-based comps.) 113.7 35.0 10.7 12.9
Source: Company reports and J.P Morgan estimates
Trang 3Table 211: SNDA Quarterly Income Statement
$ in millions
1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08E 1Q'09E 2Q'09E 3Q'09E 4Q'09E
Trang 4Table 212: SNDA Annual Balance Sheet
$ in millions
Account Receivables 4.27 4.69 5.72 6.29
Inventory 0.29 0.78 0.95 1.05
Total Other Current Assets 24.74 30.25 37.22 41.74
Gross Fixed Assets 73.44 103.80 148.71 199.31
Accumulated Depreciation (31.51) (62.54) (87.34) (120.87)
Net Fixed Assets 41.93 41.26 61.38 78.44
Other Long Term Assets 189.53 212.99 214.88 214.88
Long Term Investments and Associates 107.54 131.03 132.19 132.19
ST Debt and Current Portion of LT Debt - - - -
Accounts Payable 6.44 9.82 12.02 12.81
Other Current Liabilities 110.87 190.28 232.06 254.91
Long Term Debt - 173.46 175.00 175.00
Other Long Term Liabilities 33.76 35.75 25.25 17.67
Total Long Term Liabilities 33.76 209.21 200.25 192.67
Share Capital 1.59 1.67 1.70 1.71
Share Premium 214.08 152.10 169.06 184.68
Other Reserves 16.64 8.34 8.42 8.42
Retained Earnings 248.17 364.96 560.57 781.05
Preferred Stock - - - -
Source: Company reports and J.P Morgan estimates
Trang 5Table 213: SNDA Annual Cash Flow Statement
$ in millions
Depreciation and Amortization 26.28 32.01 41.32 47.80
Other Non-Cash Items (90.37) 7.97 7.63 7.63
(Increase)/Decrease Receivables (0.07) (0.01) (0.99) (0.56)
(Increase)/Decrease Other Current Assets (11.94) (3.13) (6.69) (4.52)
Increase/(Decrease) Other Current Liabilities 46.39 68.74 40.09 22.84
Purchase of Property, Plant & Equipment (9.70) (12.75) (44.00) (50.60)
Purchase/Sale of Other LT assets (2.00) (19.76) (17.07) (14.27)
Purchase/Sale of Investments 235.51 (13.13) - -
Issuance/Repayment of Debt (271.16) 173.46 - -
Change in other LT liabilities - (1.26) (10.82) (7.57)
Change in Common Equity - net (1.11) (100.53) 8.00 8.00
Other Financing Charges, Net - (85.27) (8.00) (8.00)
Net Effect of Exchange Rate Changes (13.41) - - -
Source: Company reports and J.P Morgan estimates
Trang 6Sina, Overweight, ($22.89)
We maintain our Overweight rating on Sina, the leader in the online branded advertising segment in China Our Jun-09 price target is US$53, which implies 31.5x FY08E and 25.1x FY09E adjusted EPS, on the back of 51% / 26% earnings growth forecast for ‘08/’09
• Sina is the leader in China’s online branded advertising market While there is debate over how China’s economy will shape up over the next few years, we are very confident that Internet usage will continue to grow, driven by lower computer prices, lower connection fees, higher influence of online media, and government support Sina, as the leader in online branded advertising in China, should remain a key beneficiary of China’s Internet usage growth We maintain our 2009 forecast for Sina to see ad revenue growth of 22% Y/Y, and we expect
to see Sina taking market share away from low-tier sites
• We also expect a continuing increase in allocation of ad budgets from offline to online media While management has observed delays in the 2009 budget planning process by advertisers, there had been no cancellations in 4Q08 as of mid-November Further, from surveying its own ad customers, the company noted that the majority of clients planned to increase their budget allocation online We maintain our view that more offline ad budgets will be reallocated to online, driven by: (1) China’s increasing Internet user penetration (still ~20% vs
~70% in the US, Japan, Korea), (2) higher cost effectiveness, and (3) relatively more measurable results for advertisers
• 2009 drivers: In our view, the following factors will drive shares in 2009: (1)
better visibility on 2009 ad budget growth by early ‘09, (2) continued solid growth in Internet usage in China, (3) potential upside from Google-Sina search and E-House real estate channel partnership, and (4) formation of further online partnerships (such as with E-House in online real estate segment)
Our current and newly introduced 2010 estimates are in the table below:
Table 214: Sina Financial Snapshot
$ in millions, except per share data
J.P Morgan
Revenue 98.7 366.8 437.6 547.5 49% 19% 25% EBITDA 31.0 106.1 138.8 173.9 43% 31% 25% GAAP EPS 0.42 1.46 1.84 2.27 51% 26% 24% Adj EPS 0.48 1.68 2.11 2.55 51% 26% 21%
Consensus
Revenue 99.2 367.7 438.3 513.6 49% 19% 17% EBITDA 31.9 99.9 133.3 166.4 35% 33% 25% GAAP EPS 0.41 1.44 1.71 1.98 48% 19% 16% Adj EPS 0.45 1.59 1.88 2.28 42% 19% 21%
Source: J.P Morgan estimates and Bloomberg *Note: Adj EPS excludes share-based compensation expense
Trang 7Our Estimates and Outlook for 2009
We forecast net revenue of US$437.6MM in 2009, up 19% Y/Y, and GAAP diluted EPS of US$1.84, up 26% Y/Y, or adjusted EPS (ex-share-based expense) of US$2.11, up 26% Y/Y We forecast 2009 advertising revenue of US$314.3MM (72% of total revenue), up 22% Y/Y, and wireless-related revenue of US$114.4MM (26% of total revenue), up 14% Y/Y Among other revenue, we currently forecast US$6.2MM in search-related revenue in 2009, up 19% Y/Y
We forecast gross margin at 61.3% for 2009, up from 60.4% for 2008 (due to lower content-related costs in 2009) Our online ad gross margin forecast is 64.6% in 2009,
up from 62.6% for 2008 (due to lower content costs), and our wireless-related gross margin forecast is 50.7%, down from 54.0% for 2008 We expect adjusted operating margin (ex-share-based expense) of 27.0% for 2009, up from 24.7% for 2008, and adjusted net margin of 29.5% for 2009, up from 27.8% for 2008
Our Estimates and Outlook for 2010
For 2010, we forecast net revenue of US$547.5MM, up 25% Y/Y, and GAAP diluted EPS of US$2.27, up 24% Y/Y, or adjusted EPS of US$2.55, up 21% Y/Y We forecast 2010 advertising revenue of US$414.1MM, up 32% Y/Y, and wireless-related revenue of US$123.5MM, up 8% Y/Y On margins, we forecast gross margin
at 61.1% (stable Y/Y), adjusted operating margin of 26.9% (stable Y/Y) and adjusted net margin of 28.6% (slightly lower Y/Y)
Price Target, Valuation and Rating Analysis
We remain Overweight on Sina, on the back of low valuation and our relatively high conviction for 2009 and longer-term growth We maintain our Jun-09 price target at US$53, which implies 36.2x 2008E and 28.9x 2009E GAAP PE, or 31.5x 2008E and 25.1x 2009E adjusted PE; on the back of our 50.6% and 25.6% earnings growth forecast for 2008 and 2009 This is above our DCF valuation of ~US$44 (12% WACC, 0% terminal growth); we believe Sina can trade at this valuation, given its estimated longer-term earnings growth of ~30% Our sum-of-the-parts valuation indicates a range of US$49.4-56.3 Sina currently holds over US$550MM of cash and short-term investments (or over US$450MM of net cash, net of ~US$100M convertible debt); with significant net cash on hand, we believe Sina can weather the more challenging environment in the near to medium term
Trang 8Table 215: SINA Annual Income Statement
$ in millions
INCOME STATEMENT
2007 2008E 2009E 2010E
Sales & Mktg expenses -49.3 -75.5 -82.3 -102.9
Adjusted EBIT (ex- 123R exp.) 59.7 90.5 118.2 147.2
Reported Net Profit 57.7 88.6 111.9 139.3
Margins (%)
Adj Operating Margin * 24.3 24.7 27.0 26.9
Sequential Growth (%)
Source: Company reports and J.P Morgan estimates
Trang 9Table 216: SINA Quarterly Income Statement
$ in millions
1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08E 1Q'09E 2Q'09E 3Q'09E 4Q’09E
Margins (%)
Trang 10Table 217: SINA Annual Balance Sheet
$ in millions
Accumulated Depreciation -39 -67 -87 -112
Long Term Investments and Associates 0 0 0 0
ST Debt and Current Portion of LT Debt 0 0 0 0
Source: Company reports and J.P Morgan estimates