GA has an immensely popular game ZT and two relatively less popular games i.e. Dragon Soul and Golden Land. However its newer game ZT Online 2 has received a great response and it is expected to contribute significantly to 2011 revenue. The official closed beta testing of ZT Online 2 in the second quarter achieved a PCU of 300,000 and next goal is to raise the PCU to 400,000 peak concurrent users.
The future pipeline for 2011 is also very promising and the odds of another hit are high. A 3-D MMORPG i.e. Spirits of the Warriors is expected to commence limited closed beta testing in mid-2011 and thus should start contributing revenue by year end. Finally, two licensed games i.e. Elsword and Allods Online have entered preliminary engineering tests and thus confirm the pipeline to be very healthy.
ACU for the company was 586,000 in the latest quarter, a 0.4% sequential increase and 0.3% decrease year-over-year. . PCU was up 11.9% sequentially and up 18.9% year-over-year to 1.916 million.
GA has a 2.5% yield and $4.1 Cash/share i.e. almost 50% of its $8 market price. Thus a 12.5x NTM PE, gets reduced to a 6x cash adjusted PE, the lowest among all China internet names. GA is thus a Growth at Reasonable Price play. Depending upon continued game success, GA should easily be trading above $10, implying a 25% upside.
Catalyst: News flow on ACU of the new game ZT Online 2 and launch date of impending game Spirits of the Warriors.
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