We expect online game revenue to grow 6% q-q and 77% y-y in 1H11. Qzone revenue should outperform.Tencent’s new game, LOL touched 700K PCU after open beta on 25 May. QQ WWJ, launched on 15 March was unspectacular (<50K PCU). After a limited open beta with 2m test accounts, LOL is opening up for unlimited open beta on21 July. PCU has already touched 700K in early June with the limited beta testing, hence we believe unlimited open beta will quickly catapult the traffic of this game to more than 1m PCU. QB purchase of LOL items has already earned Tencent more than Rmb100m of deferred revenues, according to our channel check. We estimate most of this will be booked in 2Q.
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We are convinced that Shanda Games (GAME) is on track for a turnaround, but the turnaround will be slow. 1Q top-line grew 10% y-y and 9% q-q, beating our estimate and consensus by 6% and 4%, respectively, largely due to the outperformance of casual games and game exports. Going forward, casual games should improve from a low base but GAME does not have good casual games in its pipeline. Trading at 9.2x 2011E P/E ex-cash, GAME is fairly priced. Maintain BUY; raise TP to US$8.8.