Use access key #2 to skip to page content.

TMFBoiseKen (94.92)

Holy Dividend Batman! PWRD finally set to turn the corner!

Recs

3

March 15, 2012 – Comments (9) | RELATED TICKERS: PWRD

I bought Perfect World (PWRD), the Chinese MMPORG gaming company back in 2009 on the recomendation of Motley Fool Rule Breakers. Rule Breakers sold as the company's earnings cratered, but I stubornly held on and kept buying more as the valuation of the company got better and better.


In case you still own it, you should know they just (finally!) reported a blockbuster quarter.

Earnings Release

Get full details at: http://www.pwrd.com/html/en/pdf/12_03_en_final.pdf 

My take 

They grew earnings by double digits year/year (around 21%). The Price/Earnings Ratio yesterday was around 5. I think the p/e should be closer to 15-20, which puts my price target in the range of $45-60.

Of course, I've been wrong on this stock since 2009, but I am stubborn and think I will be proven correct in the long run. 

Guidance for Q1-2012 isn't insprining.  The company reported RMB 721 for Q1-2011. The guidance is for RMB 714-753. Basicly flat. This type of news would usually depress a stock, but when you are coming off of a P/E of 5, the stock is going to soar. I bet we will see $20/share in no time flat! 

 

Big News:


"As the Company continues to generate strong free cash flow from its healthy operations, the Company would like to return value to its shareholders in appreciation of their long-standing trust and support. On March 14, 2012, the Company's board of directors declared special cash dividends in the aggregate amount of approximately USD95 million to the Company's shareholders of record as of the close of business on April 6, 2012 (Eastern Time), at USD0.40 per Class A or Class B ordinary share, or USD2.00 per ADS, each representing five Class B ordinary shares of the Company. The dividends are expected to be distributed in cash in or around April 2012.

The Company intends to distribute dividends annually in the future. However, the distribution of any future dividends will be at the full discretion of the Board and will be dependent upon the Company's financial position, results of operations, available cash, capital requirements and other factors."

 

Yes! That is $2.00 per American Depository Receipt! That is a massive dividend -- Markets closed at $12.55/share -- so that is a yield of nearly 15%. Of course PWRD is up huge on the news -- over 25% after hours. 

 

I think the company is issuing this massive dividend as a signal that the stock is very undervalued.

 

Bottom Line:

 

I was wrong for years, but I think it might have turned the corner. I sure hope so, because I am very down on this stock.

 

My personal buys:

65 shares total at an average price of $23.15. I am down overall -45.8% vs S&P gain of 25.8%

10/09 $42.33 6 shares

8/09 $37.79 12 shares

5/10 $31.60 7 shares

9/2011 $17.99 16 shares

2/2012 $12.01 24 shares

What do you think? Has PWRD turned the corner or is this bounce setting investors up for disapointment?

BoiseKen

p.s. This is not an endorsement to buy PWRD -- remember, I've been dead-dumb wrong for 3 years. But, I do think it is worth another look -- there were reasons the stock dropped for those 3 years -- mainly, they were reporting terrible earnings. But when the earnings ratio is so depressed, its hard to ignore the value!

9 Comments – Post Your Own

#1) On March 15, 2012 at 8:56 PM, HarryCarysGhost (99.69) wrote:

I have'nt looked at the stock, but one thing to keep in mind is generally when a stock offers a special dividend the share price automatically drops by the same amount. (at least thats been my experience, if I'm wrong I hope someone will point out my mistake)

I got burned by some Chinese stocks so it's just a matter of why I would ever go there again.

Cheers.

Report this comment
#2) On March 15, 2012 at 9:08 PM, Tarek307 (< 20) wrote:

The real question is, within the next couple of days if we see this stock go to $17-$18 a share, do we SELL or HOLD? 

 Would love to hear some advice! 

Report this comment
#3) On March 15, 2012 at 9:32 PM, soycapital (< 20) wrote:

My advice don't buy small cap Chinese, burned bad!

Report this comment
#4) On March 15, 2012 at 9:35 PM, TMFBoiseKen (94.92) wrote:

@Tarek307

 

I am holding tight. Think about it. $3.06 in earnings.  If we see $18/share, the p/e is still below 6! You could pry my shares away from me with a crowbar right now.

Good luck!

@Harry

You are right that the share price will drop on the day of the dividend, but I think the trend is moving up. The market is going to sit up and recognize PWRD's absurdly low valuation IMO. 

 

Report this comment
#5) On March 15, 2012 at 9:39 PM, TMFBoiseKen (94.92) wrote:

" You could pry my shares away from me with a crowbar right now."

 

Make that: could NOT 

Report this comment
#6) On March 15, 2012 at 9:56 PM, HarryCarysGhost (99.69) wrote:

How do you know the #'s are truthful. Same case could have been said for NEP not that long ago?

Report this comment
#7) On March 15, 2012 at 11:37 PM, awallejr (85.46) wrote:

That's the problem with these Chinese stocks, numbers seem to be made up.  IMO playing these stocks is truly speculative.

Report this comment
#8) On March 16, 2012 at 3:26 AM, Tarek307 (< 20) wrote:

Well we will see how it opens in a few hours! Becareful of "small" Volume trades, people may try to manipulate you into SELLING your stock so they can buy it....i think its possible to see this POP big time upto $19-$21 even!

 As for those talking about cooking the books, i believe the reason they announced the Div payout is to put share holders at ease, that the earnings are legit....PWRD has never engaged in anything negative before so i'm gonna stick with my gut feeling on this one.. 

Report this comment
#9) On March 16, 2012 at 8:03 AM, TMFBoiseKen (94.92) wrote:

I agree with Tarek307 -- You can't payout a giant cash dividend if you don't have the cash. Of course, this doesn't solve all anxiety about Chinese stock fraud. I think the best advice is to diversify and tred slowly with these stocks.

 

There were some alligations a couple months ago. PWRD rebutted them. Details here:

http://www.pwrd.com/html/en/news_c_120110.html

and some comments here: 

 http://www.fool.com/investing/general/2012/01/10/perfect-world-shares-jumped-what-you-need-to-know.aspx 

Report this comment

Blog Archive

2012
March (1)

Featured Broker Partners


Advertisement