Ten Square Games - Fishing Clash exceeds expectations
After the robust preliminary 3Q19 revenues reported by the Company (exceeding our initial expectations by 17%) as well as stronger than expected 1H19 revenues, we increase our sales forecast for Ten Square Games by 25%/44% in 2019E/2020E.
We assume that Fishing Clash will generate PLN 1.8 million/ PLN 29.8 million revenues from the Chinese market in 2019/2020. According to our estimates (based on SenorTower) in September the revenues from Fishing Clash in China booked by Ten Square Games (iOS version only) amounted to c. PLN 0.3 million which is around 20% of our target revenues for the iOS version in China (PLN 1.5 million revenues expected by DM BOÅš in December 2020). Given that (i) September was only first month of sales and (ii) no significant marketing expenditures were born yet, we feel comfortable with our assumptions. We believe that the revenues from China will become a main growth factor for the Company in the upcoming year.
In September Ten Square Games received positive tax interpretation regarding IP BOX tax relief and it started the implementation of the relief. Therefore, we decided to include the IP BOX tax relief in our forecasts, assuming effective tax rate at 8% in the explicit forecast period and 19% in the residual period. The value added by the tax relief amounts to PLN 12 per share (c. 8% of current market cap).
Consequently, we increase our net profit forecasts for Ten Square Games by 25%/29% in 2019/2020 due to (i) better than expected revenues from Fishing Clash, (ii) marginally higher assumed revenues from the Chinese market, as well as (iii) accounting for IP Box tax relief in our valuation model. Based on our forecasts the Company currently trades at 2020E P/E / EV/EBIT of 11x / 9x, which implies 39% / 19% discount vs foreign peers. On the back of boosted forecasts we increase our estimate of the Company’s 12M EFV to PLN 193 per share (from PLN 150 per share); up 29%. We also maintain our LT fundamental and ST market relative recommendations at Buy and Overweight.
Ten Square Games SA is a Poland-based mobile games development company. The Company is focused on 3D simulation hobby games for people who seek outdoor experiences on their mobile devices, like fishing or hunting games. Its games are available on social platforms, a network of partner sites, as well as on Google Play, App Store and Microsoft Store.
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