Net Dragon to use funds for R&D

PUBLISHED : Monday, 15 October, 2007, 12:00am
UPDATED : Monday, 15 October, 2007, 12:00am

Net Dragon Holdings, a Fuzhou-based maker of online games, would use proceeds from its HK$800 million initial public offering to expand its research and development team, market sources said.

The company will start its road show for the deal this week and open retail subscriptions next week. Bear Stearns is arranging the offer.

Net Dragon will list on Hong Kong's smaller Growth Enterprise Market board, the second company to do so this year after call centre operator International Elite.

'It is not easy to hire experienced workers in the online game industry,' Liu Dejian, founder and chairman of Net Dragon, said without commenting on the initial public offering. 'Fortunately, we are not suffering from a serious brain drain because our base in Fujian province is geographically isolated from other major rivals.'

The company has about 500 employees whose monthly salary ranges from 6,000 to 20,000 yuan. It has developed and is operating several large-scale online games, including Conquer Online, Eudemons Online, Zero Online, Monster and Me, and Era of Faith.

According to a research by International Data Corp, the number of online game users in the mainland was about 33 million last year and will more than double to 69 million in five years' time. Revenue from the online game industry in the nation would increase to US$3 billion from US$800 million during the period, it said.

'All of our games are free-to-play and we charge items such as virtual tools and weapons,' said Mr Liu. 'The average revenue per user is about 100 to 200 yuan per month.'

The company has more than 10 million registered users, including several million active users, 20 per cent of whom contributed most of the revenue. Gross margin is about 50 per cent.

Mr Liu said his firm might consider tie-ups with Taiwanese or Korean online game developers to distribute their products in the mainland.

'Gross margin of the distribution business is 30 to 40 per cent, lower than that of our self-developed games,' said Mr Liu. 'But if there are suitable games, we may consider selling them.'

Mr Liu, 35, graduated in the US in 1995 and founded Net Dragon with his brother after returning to the mainland in 1999. In 2003, the company sold, the mainland's largest online game portal, to for US$20 million. Last week, Mr Liu made it to Hurun's China Rich List for the first time, ranking 590th with assets worth 1.2 billion yuan.

Fortunately, we are not suffering from a brain drain because [we are] isolated from other major rivals
Liu Dejian, founder and chairman,
Net Dragon Holdings