Animation derivatives trade: Huaxia Animation's core business is to trade a series of popular animated character toys owned by third parties and provide customers with related value-added services. The company's products include regular plastic toys, food grade toys (that is, some toys that come into direct contact with food, and some toys that are packaged with candy), and product molds purchased from suppliers. Product molds are designed and manufactured by suppliers and used to produce anime-derived plastic toy products. Huaxia Animation's customers are mainly Japanese companies, namely (1) Japanese companies that purchase anime-derived products from Japanese toy companies; (2) Japan's leading outdoor theme parks; and (3) Japanese companies that distribute products in Japan and the US. By providing high-quality toy products and services, Huaxia Animation has maintained a strong cooperative relationship with customers. Revenue from this business accounted for about 90% of the company's total revenue in fiscal year 2015.
Indoor theme park: The company collaborated with Japan's SEGA and SEGA LIVE CREATION to develop the JOYPOLIS indoor amusement park in China, which is the only JOYPOLIS outside of Japan. Shanghai JOLPOLIS is located on the third and fourth floors of Shanghai Global Port, with a total floor area of 8,300 square meters. The park brings together 21 high-tech amusement equipment carefully developed by Sega, including high-tech amusement equipment such as “Transformers”, “First Letter D” and “Wild Wings”. JOYPOLIS also has two themed zones, “Wonder Forest” and “P+ Closet,” which provide visitors with diverse play spaces for children, as well as a video theme hall featuring Japan's latest and most popular cosplay costumes. Huaxia Animation is the first Joypolis operator authorized by SEGA Holdings Co., Ltd. and SEGA LIVE CREATION Inc in China. The R&D, testing, content design, technical and even staff training of the equipment met Sega's strict standards for gaming devices, and was supervised by Sega throughout the process. In addition to introducing popular amusement equipment in Japan, Huaxia Animation also made the virtual idol “Ziyan” developed by its owner as one of the theme characters of the park's games. Authorized by SEGA, China Animation has hosted the development of Happy City in other parts of China. Furthermore, Huaxia Animation Group has obtained permission from Sega and is preparing for the next development work to establish JOYPOLIS in China. The company will cooperate with Sega to inject more self-developed amusement facilities and animation elements, cosplay, and VR virtual reality technology to bring players the most technological and modern amusement experience and animated mobile game experience, creating greater synergy.
Intellectual property related business: The company has strong R&D capabilities in the creation and development of anime characters.
Through acquisitions and in-house development, the company owns intellectual property rights for several popular proprietary animations, such as “The Eight Turtles,” “Ziyan,” “Animal Environment Conference,” and “The Amazing Youyou.” The most popular of these is “Ziyan”, an avatar that performed the first holographic 3D animation concert in China.
VR related business: The company has opened a VR game center next to JOYPOLIS (Happy City) in Shanghai. Visitors to the company's VR game experience center can wear VR glasses to experience 360-degree VR experiences, enter virtual 3D environments, and enjoy multi-sensory interactive experiences. Visitors can also buy VR wearables and download game apps on the company's website, so they can enjoy VR interactive gaming experiences at any time. The VR game center offers 17 games, including games adapted from Chow Sing-chi's movie “Yangtze River 7”, and the action games “Space Fighter” and “Thunder Fighter”. There are also games centered around the company's exclusive animated characters such as “Han Eight Turtles” and “Zi Yan”. The company has expanded its share of the VR entertainment market in China. The company is involved in operating more than 1,000 VR game centers in China, through investment, direct operation, or licensing. The company also collaborates with VR game developers and operators in China to design “capsule” VR gaming devices and develop related VR game content.
Our opinion: With limited data, it is currently difficult to evaluate how much actual revenue a VR game center will bring to the company (admission fee is 20-30 yuan per person, admission time may be about a few minutes), but it has an opportunity to bring significant growth impetus to Huaxia Animation. Furthermore, we believe Huaxia Animation can use its relationship with Sega to accelerate the development of JOYPOLIS in China and develop more VR games. The company is also actively seeking partnerships with peers to develop new businesses. The company's management has kept a low profile in terms of marketing activities over the past few months, as they are focusing on business development. Since the company was silent in June, there isn't much news about the company's business development. We believe that after announcing the results, Huaxia Animation will be more active in explaining the company's trends, strategies and development roadmap to the market.
Catalyst: Announcement of FY2016 results; news about business development or partnerships with peers.