Perfect World (NASDAQ:PWRD) recently announced that it will launch open beta testing for its 2-D turn-based martial arts massively multiplayer online role playing game (MMORPG), Return of the Condor Heroes, on September 20, 2012. “Return of the Condor Heroes” is adapted from Louis Cha’s acclaimed martial arts novel of the same name and adopts some advanced 3D technologies to render delicate visual effects and various fun options for players in a traditional 2D turn-based online gaming environment
We estimate Perfect World to derive just under 30% of its valuation from its China business, though cash still makes up for almost half of our valuation for the company.
Perfect World has not had a big title launch in China in the past two years and intends to launch “Return of the Condor Heroes” before the end of the current year. According to the company, MMORPGs continue to capture the largest market share (over 60%) in China and are expected to continue doing so for the next few years. It has other games such as Swordsman online and Neverwinter in its pipeline for launch next year apart from few web based games.
Though Perfect World’s active paying customers might decline significantly this year, we believe that the rate of decline will slow down and stabilize by the end of our forecast period as the company continues to launch new games as well as expansion packs for existing games in the coming years.
Our price estimate for Perfect World is $17.68, which is at a premium of over 50% to the current market price.