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Perfect World Co. Ltd 24 June 2008

Update Report – 1Q 08 Results

Healthy 1Q 08 performance and revised top-line estimates suggest a BUY at current levels

ADR BUY Fundamental research indicates a 25% upside in the price of the ADR for the coming 6-24 months.
We have calculated the target price based on fundamental factors using the weighted average of
target prices obtained by using DCF and comparative valuation methodologies.
Fundamental Stock
Ticker: PWRD
Target price: US$31.00 We reiterate the ADR (1 ADR = 1 European Depository Receipt) a BUY based on fundamental factors,
with a 6-24 month target of US$31.00.
Current price: US$24.81

European BUY The European Depository Receipt is expected to appreciate 47% over the next 6-24 months as the 25
percentage points fundamental upside is further aided by a 22 percentage points upside attributable
Depository purely to the anticipated appreciation of the US dollar against the Euro over the same period. We are
reverting to a 6-24 month horizon to value this stock as we no longer expect a significant currency
Receipt1 impact in the medium term2.
Ticker: AFQ1y.BE
Target price: €23.00
We upgrade the European Depository Receipt from a HOLD to a BUY, with a 6–24 month target of
Current price: €15.65 €23.00.

Supervisor: Meera Patil

Analyst: Reshma Jamadar
Editor: Shem Pennant
Global Research Director:
Satish Betadpur, CFA
Next news due:
2Q 08 results, August 2008
Investment horizon – short term actionable trading strategies
This report addresses the needs of strategic investors with a long-term investment horizon of 6-24 months. If
this report is provided to you by your broker under the Global Settlement, you may now also access (free of
charge) the short-term trading outlook that we publish from time to time for this issuer, looking at the coming
5-30 days for readers with a shorter trading horizon. These are available on-line only at
www.researchoracle.com

Report summary
Perfect World Co. Ltd’s (Perfect World) 1Q 08 revenues were above our, consensus and Management
expectations. Top-line growth was driven by robust growth in the Online Game Operation and Overseas
Licensing segments. 1Q 08 earnings were also higher than expectations, mainly on account of the
healthy top-line growth, coupled with a reduction in costs as a percentage of revenues. Average
Revenue Per Unit (ARPU), Average Concurrent Users (ACU) and Active Paying Customers (APC)
maintained its steady upward trend in 1Q 08. During the quarter the company successfully launched
its fifth MMORPG Chi Bi and its first casual game Hot Dance Party in addition to several expansion
packs for existing MMORPGs. In order to exploit potential business opportunities in North America,
Perfect World established a subsidiary in the US, which will focus mainly on implementing the
company’s international expansion strategy. We believe that Perfect World is well positioned to take
advantage of the growing demand and popularity of online games, supported by a solid game pipeline,
which will drive long–term revenue growth and improve profitability and market share.

Currency impact for US investors

The company reports in US dollars, which we assume is its major trading currency. Earnings forecasts
are therefore also expressed in US dollars. Although the company may have costs as well as revenues
in other currencies, we assume that the net risk is minimized through effective hedging strategies. As
a result, the impact of currency fluctuations on the price of the ADR is neutral. Where specific currency
risks are identified, these will be highlighted in the report.

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