|作者：||Leo LIU,Matt MA|
|摘要：||Report title:Tencent (700 HK) - Game for Peace, a long-waited chicken dinner
Analyst:Leo LIU,Matt MA
■ Tencent launched PUBG alike game “Game for Peace”(战争精英)
■ User migration should be smooth with limited MT monetization
■ Maintain BUY with TP at HK$423
What happened? On May 8, Tencent launched the open beta test for its new mobile game called Game for Peace (GP), a battle royale game which has already received the license from SAPPRFT. Meanwhile, servers for its two battle royale games, PUBG Mobile and PUBG Full Ahead were closed. With direct inherited account system and social relations from PUBG Mobile, it’s clear that GP is Tencent’s replacement for PUBG titles to fulfill regulatory requirements. Although most features of GP, such as game engines, graphics, in-game items, UI etc, are almost identical to PUBG Mobile, the main differences lie in core values and visual effects. In GP, previous survival target has been replaced with military drill background. The last man standing value was diminished by allowing last five players to win, so that team collaboration is stressed over individual winning. Moreover, in-game visual effects such as blood spilling and shrinking toxic gas circle were also modified, along with a friendly waving of goodbye after being eliminated. All of these changes provide gamers with a more harmonious and relaxing vibe. These improvements combined with the new 16+ system, which more strictly prevent gamers under 16 from playing, reflected Tencent’s determination to carry out its new mission of Tech for Social Good.
Our view The aggressive approach of directly stopping the operations of existing two popular PUBG games showed Tencent’s urgent will to start driving revenue from battle royale genre, despite the risk of losing certain portion of gamers during user migration. To some extent, this also reflected Tencent's strong confidence in game quality and ease of user migration. Through direct app update (Android users can directly update their PUBG mobile to GP without new installation), effective promotional channels, and attractive in-game incentives, we believe it should be relatively easy for Tencent to migrate majority of the high value users in ST. We also believe there will be a monetization burst (over RMB 1bn grossing) in the first month after launch, thanks to the accumulated spending willingness from the long testing PUBG titles. However, given in-game item purchasing is the sole monetization method at current stage; midterm monetization could be limited, as gamers in battle royale genre generally lack adequate scenarios and willingness to show-off skins and items. In the LT, we think seasonal subscriptions like the royale pass system in PUBG mobile would be a better model for GP to reach its monetization peak. Tencent introduced the royale pass system in PUBG mobile overseas version since June 2018, and its revenue has tripled soon after that. For the whole industry, the successful launch of GP has grand positive meaning, as it has set up an example helping game companies to better understand the borderlines of game license approval standards after resumption.
Maintain BUY; with TP HK$423
We conservatively estimate that GP will bring in RMB4-5bn incremental grossing in 2019, given 1) differences in game contents; 2) sole item-based monetization system; 3) stricter 16+ system; and 4) user migration ramp-up time. We maintain BUY rating with TP of HK$423 unchanged, and would wait for 1Q19 earnings to get more info. Tencent is trading at 34x FY19E P/E vs. 27x historical avg P/E.