Hometown Interactive is a leading developer and operator of localized mobile board games in China, focusing on localized mahjong and poker games. According to Frost & Sullivan's report, in 2018, based on the coverage and revenue of localized versions, the company ranked third among Chinese online localized board game companies, accounting for 5.1% of the market share in terms of revenue from all online localized board game companies that year. Since developing mobile games in 2013, the company has continuously expanded its product supply through the development of new mobile games and game versions. It has developed and operated a total of 508 game products, including 469 localized mahjong versions, 34 poker game versions, and 5 casual games (including “Fishing”, “Relaxation” and “Big Pineapple”).
The views of China and Thailand:
China's online board game market has huge growth potential: According to Frost & Sullivan's report, China's mobile game industry achieved a compound annual growth rate of 52.3% from 2014 to 2018. The total mobile game market size in China was about 162.5 billion yuan in 2018, and is expected to reach 577.9 billion yuan by 2023, with a compound annual growth rate of 31.2%. Online board games in China cover a wide range of board games, and the number of board game users is expected to increase from 450 million in 2019 to 640 million in 2023.
In terms of operating performance: From 2016 to fiscal year 2018, Hometown Interactive Technology Co., Ltd. achieved operating revenue of RMB 50 million, RMB 260 million, and RMB 440 million, respectively. The sharp increase in 2017 was mainly due to (1) the company's introduction of private game room features (2) a significant increase in the number of paying players (3) the number of games increased from 74 to 243; the gross margin was 82.1%, 80.3%, and 76.5%, respectively. The decline in gross margin was mainly due to the increase in the use of third-party distribution channels for distribution companies. The game led to an increase in the commissions paid. Net interest rates were 46.7%, 50.7% and 49.3% respectively. The slight decline in net interest rates was mainly due to the sharp increase in the company's business, which led to increased costs and expenses, while at the same time generating lower income tax expenses in 2017. The DAU was 1.71 million, 4.61 million, and 5.2 million respectively, while the ARPPU was RMB 4.93, RMB 6.97 and RMB 11.36 respectively.
In terms of valuation: Based on the global share capital of 1.26 billion after the public sale, the company's market value was HK$1,72.3 billion, which is lower than that of its Hong Kong stock peers. The price-earnings ratio of the company in 2018 was about 6.9-9.4 times, slightly higher than the industry average; the net market ratio was about 2.55-2.80 times, slightly higher than the industry average. In terms of profitability, ROE and ROA in 2018 were 101.8% and 73.0% respectively, which is higher than the industry average. Based on the company's position in the industry, performance and valuation level, we gave it 69 points, and the rating was “neutral”.
Risk warning: (1) the risk of renewing or retaining a business license, (2) the revenue is concentrated on two major game types, and (3) relying on a small number of registered players to earn most of the revenue
