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　　机构：交银国际

　　评级：BUY

　　Game missed, education top-line growth beat. 4Q17 revenue was RMB1.0bn, down 3% QoQ/up 39% YoY. Non-GAAP operating profit was RMB8.1m, vs RMB13m in 3Q17 and loss of RMB67m in 4Q16. The QoQ revenue/profit decline is within our expectation, due to seasonality of international education business. The YoY revenue growth was driven by mobile games and the education business.  

　　New games to contribute revenue from 2H18. 4Q17 game revenue was RMB430m, down 2% QoQ/up 26% YoY. The YoY growth was driven by 85% YoY mobile game growth, fueled by new games . In 2017, flagship IP Eudemons Online saw record high revenue of RMB1.37bn, up 48% YoY. For 2018, management expects 3-5 games based on the IPs of Heroes Evolved and Eudemons Online to be launched and contribute revenue from 2H18. We expect new games to drive gaming business growth in 2018, while existing games will stabilize.  

　　Promethean revenue up 32%, turned to profit. Education revenue was RMB575m from overseas/China). China education revenue rose 178% QoQ, as much of contracted sales in prior quarters were recognized in 4Q17. By end-2017, sale orders to be validated were RMB279m . Promethean revenue grew 32% YoY, on leading position in K12 interactive technologies especially in US. Promethean turned profitable , on operating leverage and cost rationalization. 

　　Valuation. In 2018, we expect steady education business growth as Promethean’s products penetrate in the Americas and emerging regions, but near-term margin pressure for China education as the monetization is in early stage. We expect game revenue growth to resume in 2H18, depending on the launch plan. We fine-tune top-line estimate. Based on 2018-27E 10-year DCF model, we maintain our valuation for education and gaming businesses. Considering the LT growth potential of online education and IP value of gaming business, we maintain TP of HK$32.00 and Buy.   

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