20210608-招银国际-雷蛇-01337.HK-Well-positioned_integrated_ecosystem_for_gamers_39页_2mb

Razer Inc. (1337 HK) Equity Research Summary

Core Content

Razer Inc. is a leading global gaming brand that has built a strong integrated ecosystem of hardware, software, and services. The company was founded in 2005 and is renowned for its premium gaming peripherals and laptops. Razer's business model has evolved from a hardware-focused company to a more diversified platform that includes software and payment services, positioning it well to capture the growing gaming market.

Main Points

• Market Position: Razer holds a leading position in the gaming hardware industry with a significant market share in the U.S., Europe, and Asia Pacific. It is also a major player in the gaming peripherals segment.

• Integrated Ecosystem: Razer offers a broad range of products, including mice, keyboards, headsets, gaming laptops, and more, along with software platforms like Razer Synapse, Razer Cortex, and Razer Chroma. These tools enhance user experience and increase brand loyalty.

• User Engagement: Razer has a strong user base with high engagement and loyalty. In 2020, it served over 123 million registered customers, with a 53.8% YoY growth in user base. The company also benefits from high average spending per user, especially in emerging markets.

• Monetization Strategy: Razer has expanded into payment services, notably Razer Gold and Razer Fintech, which are expected to become new growth drivers. These services are particularly relevant in the Southeast Asian (SEA) market, where 82% of the online population are gamers.

• Revenue Growth: Razer's FY20 revenue reached US$1,215 million, with a 48% YoY increase. Its hardware segment outperformed the market, achieving 52% YoY growth. The company is projected to deliver 20% CAGR for revenue and 50% CAGR for net profit during FY21–24E.

• Valuation: The report initiates coverage with a BUY rating and a target price of HK$3.22, which represents a 48% upside from the current price of HK$2.18. This valuation is based on a Sum-of-the-Parts (SOTP) approach with 25.6x/10.3x FY22 P/E for peripherals/system segments and 1.0x FY22 P/S for services business.

• Market Outlook: The global games market is expected to grow to US$205 billion by 2023, with an 8% 3-year CAGR. The SEA internet economy GMV is projected to reach US$309 billion by 2025, supporting Razer's expansion into payment services.

• Key Growth Drivers:

  • Expansion into emerging markets like SEA, LatAm, and MENA.
  • Increasing online gaming and esports activities.
  • Strong user stickiness and brand loyalty, with 46% of users owning multiple peripherals.

Key Information

• Razer's Revenue Forecast:

  • FY20: US$1,215 million
  • FY21E: US$1,552.3 million
  • FY22E: US$1,913.2 million
  • FY23E: US$2,305.8 million

• Gross Profit:

  • FY20: US$271 million
  • FY21E: US$396.1 million
  • FY22E: US$503.1 million
  • FY23E: US$626 million

• Net Profit:

  • FY20: US$5.6 million
  • FY21E: US$59.8 million
  • FY22E: US$117.2 million
  • FY23E: US$160.7 million

• Growth Rates:

  • Revenue CAGR: 20% (FY21–24E)
  • Net Profit CAGR: 50% (FY21–24E)
  • Service Revenue CAGR: 35% (FY21–24E)

• Payment Services:

  • Razer Gold: Over 26 million registered users, leading market shares in SEA, LatAm, and MENA.
  • Razer Fintech: One of the leading O2O digital payment networks in SEA, with US$4.3 billion in FY20 TPV.

• Financial Highlights:

  • EBITDA grew from negative US$29.4 million in FY19A to US$236.1 million in FY23E.
  • Net profit turned positive in FY20, with a significant improvement in profitability.

• Investment Risks:

  • Macroeconomic uncertainty.
  • Faster-than-expected virus control and return to work.
  • Supply chain disruptions and PC component shortages.
  • Intense competition from peers with lower margins.
  • Regulatory challenges in fintech business.

Conclusion

Razer is well-positioned to benefit from the rapid growth of the global gaming and internet economy. Its integrated ecosystem, strong brand loyalty, and expansion into payment services make it a compelling investment opportunity in the fast-growing gaming market. The report recommends a BUY rating with a target price of HK$3.22.