On Tuesday, Citi has downgraded the stock rating for IGG Inc., listed as 799:HK and OTC: IGGGF, from Buy to Neutral and adjusted the price target to HK$4.00 from the previous HK$5.50. The revision follows a positive profit alert from the company, which reported a profit of HK$70 million, surpassing market expectations. This profit boost was attributed to the successful revenue contributions from the games "Doomsday" and "Viking Rise," an upturn in the company's app business, and a significant reduction in research and development (R&D) as well as general and administrative (G&A) expenses.
Despite the encouraging profit news, IGG has halted the extensive promotion of "Doomsday" and "Viking Rise." This decision introduces greater uncertainty regarding the company's growth outlook and promotional activities planned for the year 2024. Citi expressed caution regarding the potential impact of marketing expenses on profitability, referencing past expansion cycles where such spending had a negative effect.
The firm also noted that while the current estimates may better reflect the uncertainties in IGG's growth trajectory compared to other market predictions, the downside risk to the stock price might be mitigated by the stable performance of "Lords Mobile," another game in IGG's portfolio. Following the revised estimates, Citi has set the new price target based on a 10x multiple of the forecasted FY24E earnings per share (EPS) of HK$0.41.
In conclusion, Citi's downgrade to a Neutral rating from Buy and the introduction of a negative 30-day cautionary window reflects concerns over the unclear growth prospects for IGG Inc. in the coming year.
InvestingPro Insights
Following Citi's recent downgrade of IGG Inc., investors might be looking for additional data points to assess the company's financial health and future prospects. According to real-time metrics from InvestingPro, IGG Inc. (OTC: IGGGF) holds a market capitalization of $563.26 million USD, indicating a significant presence in its sector. Despite the company's recent profit alert, the P/E ratio stands at -6.50, reflecting market skepticism about its future earnings potential. This is further emphasized by an adjusted P/E ratio for the last twelve months as of Q2 2023, which worsens to -9.57.
InvestingPro Tips reveal a mixed financial picture for IGG Inc., with the company holding more cash than debt on its balance sheet, suggesting a strong liquidity position. Moreover, liquid assets exceed short-term obligations, providing the company with a cushion to manage short-term liabilities. However, it's important to note that the company was not profitable over the last twelve months, which aligns with the negative P/E ratio. On a positive note, analysts predict the company will be profitable this year, which could signal a turnaround in its financial performance. Additionally, IGG Inc. is trading at a low revenue valuation multiple, potentially offering an attractive entry point for value investors. It's worth mentioning that the company does not pay a dividend, which may influence the investment decision for income-focused shareholders.
For investors seeking a comprehensive analysis, there are additional InvestingPro Tips available at: https://www.investing.com/pro/IGGGF. These tips could provide deeper insights into the company's valuation and performance metrics. Moreover, readers can benefit from an exclusive offer by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable investment information. With a total of 7 InvestingPro Tips listed for IGG Inc., investors have a robust set of tools at their disposal to make informed decisions.
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