Analyst: The9's Fundamentals Strengthened by Guild Wars License (NCTY)

| About: The9 Limited (NCTY)

Jim Sun of Evolution Securities China released a note to clients earlier today on The9 (ticker: NCTY). Key extracts:

Rating and valuation. We are maintaining our BUY recommendation, and raising our target price from US$25 to US$32, which represents 9.4x our adjusted FY07 EBITDA estimate, 13.3x our adjusted FY07 ex cash EPS estimate and 15.1x our adjusted FY07 EPS estimate. Our EV/EBITDA multiple is based on our 15.6% a long term (2007 - 2010) growth rate estimate applying a PEG of 0.6x (up from 0.5x previously).

Exclusive licence for Guild Wars. the9 (NASDAQ:NCTY) announced yesterday that it has obtained an exclusive license to operate Guild Wars in mainland China. Guild Wars is one of the most popular online games in North America, developed by NCsoft Corp. About 1 million units of the game have been sold since late Apr. 2005. We estimate the9 will launch Guild Wars in late 2006 or early 2007.

No change to EPS estimate. We maintain our 2007 EPS estimate of US$2.11 (excluding stock based compensation), but are raising target price by using a fair value PEG of 0.6x (up by 20% from 0.5x previously), because the9’s fundamentals are strengthened now that it has 3 licensed games in the pipeline.