Alpha Group (A-Share):The power of IP发布时间：2018-02-23 研究机构：麦格理证券
From toy manufacturing to entertainment & licensing
The company is at its initial stage to transform itself into an IP licensing companyfrom a toy manufacturer. Its key IP, Pleasant Goat and Big Big Wolf (喜羊羊与灰太狼), is one of the best-known Chinese cartoon series and its newly launchedK12 IPs Super Wings (超级飞侠) also has gained wide popularity amongChinese kids. In 2017, Alpha had a mere 2.9% of revenue from IP licensing,which is compared to international companies such as Hasbro’s 10% andeOne’s 51%. We expect that figure to expand to 4.4% in 2020 and help improvethe gross margin of Alpha by ~1ppt a year. The licensing is not just among K12products, but also mass market products, e.g. FMCG, F&B, hotels, given thefame of the IPs.
Comic IPs geared to rising demand from OTT platforms
Alpha owns U17, the second largest online comic platform in China. That isgeared to the rising original IP demand from iQiyi/Youku/Tencent Video, whichare keen to increase original TV drama series to attract subscribers and lowercosts. We see comic IP-based TV dramas in China jumping to 13 series in 2017from 1-2 series in 2015-16. Along with regulators’ encouragement in contentbased on original IPs, we see growing value to quality IP libraries such as U17.
K12 IPs benefit from lift of one-child policy
New births in China should finally see a 3% CAGR from 2015-25E, estimated byNBS, after a chronic 1.5% decline since 1990, thanks to the lift of the one-childpolicy. Alpha Group, which has around 60% sales exposure in K12 and 30% injuvenile products, will benefit directly. Based on the company’s plan, there will bemore K12 educational products based on its key IPs to come. They also aim toprudently expand the IP-based indoor kids’ playground business at a low cost bypartnering with mall developers. Its home-grown IPs fit well with thegovernment’s attempt to cultivate domestic brands in culture fields.
Strategy realigned to focus on core IPs; initiate with OP
The company realigned its strategy to focus on core IPs from 2018, aftersuffering from over-diversification in 2015-17, which has sent its valuation to atrough of 31x 18E PER (vs historical average of 42x). Our TP is based on a 39xPER to factor in the execution risk of its new strategy. We expect the earnings toreturn to a growth trajectory in 2018 with a 185% CAGR in 2017-19E, after a42% decline in 2014-17E. Initiate on the company with an Outperform rating.
Risks: execution risk, competition from foreign brands, over-diversification.