The report was prepared by Dom Maklerski BDM at the request of the WSE as part of the Exchange's Analytical Coverage Support Programme.
Last recommendation BDM: BUY with target price 7,2 PLN/share (2022/10/12) LINK
BDM Comment: The final results of Forever Entertainment for Q3'22 turned out to be slightly higher than the previously presented estimates. As indicated in our recent comments, we are positively surprised by the company's results for the past quarter. In our last report (Forever Entertainment Buy 7,2 PLN ). we forecast lower results. Over the discussed quarter, the company generated PLN 11.8 million in revenues (+ 54.3% y/y) - of which PLN 9.8 million relates to revenues from the sale of products - an increase by 45.9% y/y, and the rest that is PLN 2.0 million until the change in the state of products - an increase by 114.0% y/y. The premiere of the game "THE HOUSE OF THE DEAD: Remake", which generated the highest sales revenues in the company's history so far, had the greatest impact on the increase in the company's revenues in Q3'22. Another significant factor in the increase in revenues in the periods discussed was the settlement of advances for the production of games, which reflects the acceptance of subsequent stages of their implementation. We estimate that in the discussed period, sales of the above-mentioned title were at the level of approx. 35-40 thousand. copies. The company's operating expenses in Q3'22 increased by PLN 3.5m, i.e. by 58.3% y/y, to PLN 9.6m. The increase in the value of the company's operating costs was mainly related to the increase in the costs of external services by PLN 3.0 million, i.e. by 74.5% y/y to the amount of PLN 7.0 million for 3Q'22. The amount of external services includes the value of the provision in the amount of (PLN 0.6 million for 3Q'22), created for future costs of settlements with contractors due to their share in profits from the sale of games ("revenue share"). The second significant operating cost was the cost of salaries and social security, for Q3'22 they totaled PLN 2.3 million and were 41.2% higher y/y compared to Q3'21. Employment increase over the year in the group at the level of 35%. The company's EBIT in 3Q'22 amounted to PLN 2.4 million (+ 34.1% y/y), while the company's EBITDA for the period in question was PLN 2.4 million (+ 19.0% y/y). In terms of financial activity, the company generated PLN 0.2m. The net profit for the period in question amounted to PLN 2.3 million and was higher by 46.3% compared to Q3'21. Without the RS provision, FOR's net profit would have been PLN 2.3m for Q3'22. At the end of Q3'22, the company had PLN 2.6m in cash and other assets (PLN - 0.3m q/q). Receivables from other entities decreased q/q by PLN 2.2m to PLN 6.1m. Provisions for liabilities increased by PLN 0.6m q/q to PLN 4.5m. Short-term liabilities fell by PLN 2.9m q/q to PLN 4.5m. The operating CF amounted to -11 thousand. PLN, CF investment = -0.2 million PLN, CF financial = -4.9 thousand. PLN. Most of the titles for which he is the producer and publisher are listed in the release schedule. In addition to them, the company together with entities from the group also realizes the titles not yet disclosed. We would like to remind you that the premiere of the most important production of FOR now, ie "FRONT MISSION 1st: Remake" will take place on November 30, 2022 (presale will start on November 16, 2022).
• The company's revenues for Q3'22 amounted to PLN 11.8 million and were higher by 54.3% y/y (of which PLN 9.8 million relates to revenues from sales of products - an increase by 45.9% y/y, and the rest, i.e. PLN 2.0 million, until the change in the state of products - an increase by 114.0% y/y).
• The premiere of the game "THE HOUSE OF THE DEAD: Remake", which generated the highest sales revenues in the company's history so far, had the greatest impact on the increase in the company's revenues in 3Q'22. Another significant factor in the increase in revenues in the periods discussed was the settlement of advances for the production of games, which reflects the acceptance of subsequent stages of their implementation.
• Currently, Forever Entertainment implements independently or finances or contracts the implementation of several remake games to development studios in which it has shares. Most of the titles for which it is the producer and publisher are listed on the schedule of prime ministers. In addition to them, the company, together with entities from the group, also realizes the titles not yet disclosed. The budgets of currently produced games are much higher than the ones made in previous years. The increase in gaming budgets may be confirmed by the increase in employment (excluding company governing bodies) at the end of September 2022 in FE and the FE Group by 35% y/y.
• The company's operating expenses increased by PLN 3.5m, i.e. by 58.3% y/y to PLN 9.6m in Q3'22.
• The increase in the value of the company's operating expenses was mainly related to the increase in the costs of external services by PLN 3.0 million, i.e. by 74.5% y/y to PLN 7.0 million for 3Q'22. The amount of external services includes the value of the provision in the amount of (PLN 0.6 million for Q3'22) created for future costs of settlements with contractors due to their share in the profits from the sale of games ("revenue share"). Without the RS provision, FE's net profit would have been PLN 2.3m for Q3'22.
• The second significant operating cost was payroll and social security costs for Q3'22, totaling PLN 2.3m, and were 41.2% higher y/y compared to Q3'21.
• EBIT for 3Q'22 amounted to PLN 2.4 million (+ 34.1% y/y), while the value of the company's EBITDA profit for the discussed period was PLN 2.4 million (+ 19.0% y/y).
• On the financial activity level, the company generated PLN 0.2 million.
• Net profit for Q3'22 amounted to PLN 2.3 million and was higher by 46.3% compared to Q3'21.
• Operating profitability EBITDA decreased to 20.7% for Q3'22 from 26.8% for Q3'22, with operating profit margin falling to 20.0% from 23.0% in the compared quarters. In the discussed period, FOR's net profitability fell to 15.5% compared to 20.6% in Q3'21.
• At the end of Q3'22, the company had PLN 2.6m in cash and other assets (-PLN 0.3m q/q). Receivables from other entities decreased q/q by PLN 2.2m to PLN 6.1m. Provisions for liabilities increased by PLN 0.6m q/q to PLN 4.5m. Short-term liabilities fell by PLN 2.9m q/q to PLN 4.5m. The operating CF amounted to -11 thousand. PLN, CF investment = -0.2 million PLN, CF financial = -4.9 thousand. PLN.
• At the end of Q3'22, inventories decreased by PLN 0.5 million: finished products increased by PLN 0.2 million, advance payments for deliveries decreased and services by PLN 0.6 million, a decrease in semi-finished products by PLN 0.1 million.
• The most important event in Q3'22 was the presentation at the Nintendo Direct conference of another film material (gameplay) of the game FRONT MISSION 1st: Remake (preorders: 16/11/2022, premiere: 30/11/2022).
• At the same global event, the first footage of the upcoming FE Group production: FRONT MISSION 2: Remake was presented. In the case of this title, it will be the first official release of this game outside of the Japanese market. The new version of the game will be characterized by completely new graphics and a few gameplay modifications, thanks to which the game will become more attractive to modern players, while remaining faithful to the original in terms of plot. The premiere of FRONT MISSION 2: Remake is scheduled for 2023.
• Moreover, the third major title from the Company's portfolio has been announced at Nintendo Direct: FRONT MISSION 3: Remake. This event strengthened the promotion of the aforementioned titles, and significantly contributed to the recognition of the Company in the world, and this will translate into obtaining attractive licenses.
• Magical Drop VI - the premiere of the game is scheduled for the winter of 2022/2023.
• In Q3'22, the company continued work on creating tools enabling the transfer of mechanics and the implementation of code fragments of titles from (consoles) older generations in order to accelerate the implementation of game remakes implemented by the company. In addition, the implementation of a tool facilitating prototyping of the mechanics of new titles was started.
• UF GAMES - works related to the introduction of all UF GAMES shares to trading in the ASO on NewConnect are in progress. Two titles achieved record sales on the Nintendo Switch console. Exceeding the number of 1,400,000 units sold is a huge success. pieces and 938 thousand. pieces by Thief Simulator and Cooking Simulator respectively. These two titles have been at the top of Nintendo Switch sales lists on various continents for many quarters. On November 2, 2022. Management Board of the Warsaw Stock Exchange S.A. adopted a resolution on introducing series A, B and C ordinary bearer shares to the alternative trading system on the NewConnect market.
• As of September 30'22, the company employed a total of 69 people, including 37 people under a contract of employment (32 full-time people) and 32 people on the basis of civil law and B2B contracts.
• The current schedule of premieres: https://forever-entertainment.com/premiery,4,pl .
Analyst: Krzysztof Tkocz krzysztof.tkocz@bdm.pl tel.: (+48) 516 086 705
GPW’s Analytical Coverage Support Programme 3.0
