Chinese mobile games player CMGE seeks Hong Kong listing after quitting Nasdaq

CMGE hopes to raise about US$500 million, but cautions investors it expects most of its revenue to continue coming from licensed games and games based on its licensed intellectual properties

PUBLISHED : Wednesday, 05 September, 2018, 9:40am
UPDATED : Wednesday, 05 September, 2018, 5:29pm

China mobile-gaming giant CMGE Technology Group has filed to go public on Hong Kong’s stock exchange, aiming to raise about US$500 million.

CMGE – which delisted from the Nasdaq in the US in 2015 – is the largest mainland Chinese publisher of mobile games, based on intellectual properties ownership in the three years to June 30 this year, according to consultancy Analysys.

Through the acquisition of a 51 per cent stake in Beijing Softstar this year, the Shenzhen-based company gained ownership of popular games including Legend of Sword and Fairy, Xuan Yuan Sword and Monopoly.

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Formerly known as China Mobile Games and Entertainment Group Ltd, it has launched 61 mobile games in the 42 months to June 30 of this year, in which 10 remained “active”, with 50 more planned to be launched by the end of next year, according to the prospectus posted on the exchange’s website on Tuesday. The company aims to raise about US$400 million to US$500 million through the initial public offering, according to a source familiar with the matter.

But the gaming company cautioned investors that it had only published games developed by third parties in the 42 months to June 30 this year through licensing agreements whose terms generally last three to five years, renewable for one or two years subject to owners’ approval.

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“Although we possess proprietary intellectual properties and in-house development capabilities as a result of our acquisitions of Wenmai Hudong and 51 per cent equity interest in Beijing Softstar in May 2018, we expect the majority of our revenue to continue deriving from licensed games and games developed based on our licensed intellectual properties,” it said.

“We cannot assure you that we will be able to successfully license games developed by third-party game developers and intellectual properties from their owners, or that our licensed intellectual properties will be developed into successful games.”

Ten of 26 licensed intellectual properties and 20 out of its 70 game licensing agreements will be due for renewal by the end of next year.

It published its games solely through third-party channels, including those of Apple, Tencent, Qihoo and Baidu.

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CMGE also warned that low barriers to entry means the industry is highly competitive with more entrants expected.

“The industry is characterised by frequent introduction of new games and services, short game life cycles, evolving industry standards, regulatory uncertainty, rapid adoption of technological and game advancement, as well as price sensitivity [of] players,” it said.

Net profit for the year’s first half surged 66 per cent year on year to 162.7 million yuan, as revenues grew 15.9 per cent to 672.5 million yuan. Full-year net profit amounted to 265 million yuan last year.

CMGE began life in 2009 as part of Hong Kong-listed V1 Group, whose mobile game business was spun off on the Nasdaq in 2012 when it became China’s first mobile game developer listed in the US.

Controlled by its co-founders – chairman Xiao Jian and vice-chairman Hendrick Sin – the firm was taken private by a consortium of financial investors three years ago.

It plans to spend its funding raised on game development and acquisitions.

The joint sponsors of CMGE’s IPO are CICC and BNP Paribas.

China’s mobile gaming revenue grew 12.9 per cent year-on-year in the year’s first half to 63.4 billion yuan, a marked slowdown from 49.8 per cent recorded in the same period last year, according to the China Gaming Industry Report compiled by state-backed industry portal

“The industry’s growth will face substantial headwinds in the short term, as users’ more sophisticated tastes meant new games have greater difficulty attracting users, lure them away from existing games and converting them into paid users,” wrote Zhongtai Securities’ Shanghai-based analyst Zhu Qinnan in a note early this month. “The key to a breakthrough is innovative content and quality upgrade.”

Louis Tse Ming-kwong, managing director of VC Asset Management, said the industry will face more challenges given Beijing has stepped up scrutiny of mobile gaming’s health impact on youths.

Beijing last week issued a document saying a newly formed gaming regulator will restrict the number of new online video games, limit the amount of time minors spend on games and set up an age-appropriate reminder system for games.

It came a week after President Xi Jinping called for more efforts to tackle myopia among children, partly blamed on excessive video games playing.

“As to whether investors would find CMGE’s IPO attractive, it will depend on the shares’ pricing and the stock market sentiment at the time of its shares offer,” Tse said.