Company Overview
The company is a leading developer and operator of localized mobile board games in China, with a special focus on localized mahjong and poker games. The company has developed different versions of mahjong and poker games. These versions feature local regional game rules, scoring rules and slang, and cater to the various traditions and preferences of players from different regions. Currently, 508 game products have been developed and operated, including 469 localized mahjong versions, 34 poker game versions, and 5 casual games (including “Fishing”, “Fun” and “Big Pineapple”), covering some counties and towns in 24 provinces and municipalities directly under the Central Government of China.
The company adopted a unified platform strategy to integrate game products into a comprehensive gaming platform. The 2018 paying players, DAU and ARPPU were approximately 3.2 million, 5.2 million and RMB 11.4 respectively. The company's revenue sources are mainly virtual tokens and game room cards in self-developed mobile games. The compound growth rate of virtual tokens has reached over 90% in the past three years.
In terms of revenue, the top five companies in the Chinese online localized board game market accounted for about 33.1% of the total market. The company ranked third in the market, with a share of 5.1%.
FY2016-FY2018, the company's revenue was RMB52 million, RMB262 million and RMB440 million respectively, with gross margins of 82.1%, 80.3% and 76.5% respectively; net profit was RMB24 million, $133 million and $217 million respectively, with net interest rates reaching 46.7%, 50.7% and 49.3% respectively.
Status and prospects of the industry
Board games have long been highly popular in China. With the development of the Internet, board games were first introduced to the public on PC terminals and successfully attracted some traditional players. The popularity of mobile devices has been driving the rapid expansion of the online board game industry since 2013. The size of China's online board game market reached RMB 10.5 billion in 2018, and the CAGR in 2014-2018 was 39.2%. The upward trend in the size of China's online board game market is expected to continue, with a CAGR of 28.0% in 2019-2023, reaching 37.6 billion yuan in 2023.
Localization of online board games will be the new trend. Board games are particularly popular in Tier 3 and Tier 4 cities and small counties, with localized game rules for different regions. China has 31 provincial regions, 661 cities, and 1,636 counties. Each region has different game rules and gameplay, and some larger cities or counties have more than one type of gameplay. At the end of 2018, the localized board game market developed more than 3,410 localized mahjong game products and more than 1,430 localized poker game products based on more than 600 mahjong game versions and more than 130 poker game versions already developed in China.
Advantages and opportunities
The company adopts a unified platform strategy and integrated back-end system to enhance player experience and profitability;
Strong offline game promotion capabilities, direct interaction with target audiences, and design promotion plans according to local conditions.
Weaknesses and risks
Room card board games are a key target of national supervision and face policy risks;
The entry threshold for the mobile game industry is low, and competition in the industry is fierce;
The company was founded in a short period of time, and rapid growth during the track record period is difficult to use as an indicator for evaluating growth prospects.
Investment valuation
Based on prospectus pricing (HK$1.35—1.85), the company's price-earnings ratio in 2018 was 7.3x-10.0x, and the net price-earnings ratio was 2.55x-2.80x. The valuation is reasonable. The company is growing rapidly and its profitability is outstanding, but it may face strong regulatory policy risks. Based on comprehensive considerations, an IPO-only rating of “5” was given.
