WOOD Flash – Mail.ru: expecting neutral FY19E results, focus on future execution (due on 26 February)

We expect Mail.ru’s FY19E results (due out on 26 February) to be generally in line with the latest guidance, although we note that our original estimates were probably a little more optimistic and did not fully reflect the consequences of just two new game launches in FY19, compared to the five planned initially. Hence, we have trimmed our revenue estimate for the Games segment by c.RUB 1.4bn, to RUB 7.6bn, for 4Q19E. Our new FY19E total revenue (under management accounts) is RUB 86.6bn (down 1.6% relative to our initial estimate). At the same time, we see little impact on our EBITDA estimates, as the margin contribution from new games is normally negative at the initial stage, due to the high marketing spend. We see FY20E as a very important year for the company, following a period of transformation deals and partnerships with AliExpress and Sberbank. Should the company focus more on execution and delivery in its key segments (which seems to be management’s intention), we expect its stock to re-rate closer to fair value. On top of this, with all the ingredients in place (e.g. ,leading social platforms, leading JV partners, a growing Games business), we see a strong opportunity for Mail.ru to create a leading digital platform in Russia, which should provide additional value for customers and boost the performance of individuals segments. Our price target (PT) of USD 27 assumes no additional benefits from having an integrated digital platform.