Perfect World engaged in Film and TV series creation as well as Gaming development in China, together with strong game development and film production capabilities. Besides, it is one of the few who has gaming and film & drama business in the market. Those two businesses could create a robust synergy, so Perfect can maintain rapid growth in the future. We project the net profit growth to be 19%/32% in 2018/19F. Assuming a target P/E of 23x in 2018, we initiate a “Accumulate” rating and give a target price of $31.19 with a potential upside of 11.0%. (Closing price at 30 July 2018)
In 10 Dec 2014, Perfect injected the assets of Film and TV drama into “Jinlei co.” to list in A share market, and renamed to “Perfect World Pictures”. In 6 Jan 2016, the assets of gaming development are also injected into the listed company at a price of 12 billion RMB, and renamed to “Perfect World” in July. In addition, it acquired Jindian Studios, Jindian Cinema, and Jindian Culture for 1.353 billion RMB in 13 Sep 2016, in order to enhance the distribution channel. However, Due to the poor performance of cinema business, perfect transferred its assets of cinema business to the Perfect World Holdings, the controlling shareholder of the listed company, at a price of 1.665 billion RMB.