Both the P/E and P/S valuations of comparable peers are so far from the $570m-630m valuation ascribed to NQ post-merger it look ridiculous. (Having said that, lets not forget that the $570-630m overvaluation is largely in part to compensate for TF's overvaluation. These valuations are only important in establishing the split in the ownership of the merged entity. Based on the numbers provided NQ will own 65-70% post merger which in my book is not good enough).
The listed Hong Kong gamer valuations make the $400m valuation that Bison paid up for FL in May look a bit too high. Let's remember though a lot of the Chinese mobile gaming stocks have fallen heavily this year.
(1) Relative peer valuations in Hong Kong suggest FL Mobile will get a value of between $275-$350m market cap only.
(2) If the company is giving away 30-35% of the company in order to do this deal it only unlocks $180m to $245m value for its share of the merged entity
(3) Dr Feng will own about 5% of the enlarged share base. His shares were granted. I think this is a way for NQ to own more shares without being classified as an affiliate, but Im not sure. I dont think NQ will own up to this because it may contravene some HK listing rules. We need to force this issue with NQ and if not threaten to bring it to the table with Hong Kong Listing Authority.
I was looking at some Mobile Gaming HK comps for FL/TK. I was not impressed.
- Applying forward P/E of 11.2x on FL 2015 Net income ($26m) suggests a market value of $275m
- Even if my Net Income calculation for FL is way off, on a P/S basis applying average forward P/S of 2.13 on FL 2015 Revenue at $162m suggests market value of $350m
- NQ's share is 65-70% of those numbers.
(see attached table for peer comparisons)
FL Mobile
• 2015 Revenue $162m *
• 2015 Net income $26m **
* Expect 2014 FL Revenues to be c. $90m growing at c. 80% y/y ** Expect FL Net income margins around 16%
