Goldman Sachs Initiates Coverage On Giant Interactive Group With Buy

Goldman Sachs is initiating coverage on Giant Interactive Group GA with a Buy rating and a 12m target price of $8.83, implying 24% share price upside. Goldman believes that its upcoming key title ZT OL II will likely achieve success. Moreover, ZT OL Free, the flagship game for Giant, has turned around in the last 2-3 quarters. Goldman estimates ZT OL Free will see steady revenue growth of 8% yoy in 2011, providing FCF of about Rmb500mn per year, translating to 9% of Giant's economic value. Goldman sees cannibalization risk to Green ZT, given the similar economic systems adopted and less so for ZT OL Free on different targeted user segments. Even if cannibalization occurs, ZT OL II still diversifies revenue and extends the lifespan of the overall ZT Franchise. Our risk-reward analysis suggests 45% upside/17% downside in a best/worst case. Goldman has a $8.83 PT on GA