UPDATE: Citigroup Initiates Perfect World at Buy with $20.41 PT; Stock Undervalued

Citigroup initiated coverage on Perfect World

with a Buy rating and a price target of $20.41. Citigroup said, "Perfect World now trades at almost zero equity value excluding net cash and the market value of its office building. This is mainly due to concerns that current operations are declining. We initiate coverage at Buy premised on our views that 1) its existing games have strong cash-generating capability, i.e. c.33% free cash flow yield currently; 2) company has sustainable overseas game licensing revenues, and 3) company could start to pay regular cash dividends as early as this year. In addition, its cash position and asset value provide a floor for its market value." Perfect World closed at $10.31 on Monday.