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解码中手游(0302.HK)半年报:盈利能力显著增强,多重布局赋能增长

Decoding China Mobile Gaming (0302.HK) Semi-Annual Report: Profitability Has Increased Significantly, and Multiple Layouts Empower Growth

Gelonghui Finance ·  08/29/2023 11:46

This year, the game industry began to resume a fast-paced pace of development, and signs of sector recovery gradually became apparent.

On the one hand, game version distribution has become normal, encouraging the emergence of more innovative and high-quality game titles. The number of domestic game versions approved this year has reached 610. If we calculate the average number of releases per month, the average number of monthly versions in 2023 will reach 87.2, far exceeding the average number of monthly versions of 66.86 in 2022.

On the other hand, continued growth in sales revenue and user size shows the vitality and potential of the gaming market. According to the “China Game Industry Report for January-June 2023”, from January to June 2023, the actual sales revenue of the Chinese game market reached 144.263 billion yuan, an increase of 22.16% over the previous year; the number of domestic game users was 668 million, an increase of 0.35% over the previous year, reaching a record high.

Finally, it is particularly worth mentioning that the AIGC wave empowers game companies to reduce costs and increase efficiency, injecting new vitality and creativity into the industry. Dynamics such as Chinajoy's return to offline after a lapse of two years and the establishment of the first AIGC conference have explained the paradigm shift in the game industry under the AI wave, and also regained the market's attention to the game industry.

From an investment perspective, the current environment actually provides investors with an opportunity to identify and invest in promising gaming businesses.

Recently, China Mobile Games released its performance report for the first half of 2023. Disassembling this financial report, we can see that China Mobile Gaming not only achieved double-digit growth in terms of revenue, but also successfully turned losses into profits, which just happened to provide us with an observation perspective.

Empowered by AIGC, significant results in cost reduction and efficiency

Financial reports show that in the first half of the year, mobile games achieved revenue of 1,535 billion yuan, up 24.6% year on year; net profit of Gimu was 56.824 million, up 376.7% year on year; adjusted net profit of 76.168 million, up 586.6% year on year, and performance successfully turned loss into profit.

At the same time, the number of users of the company continues to grow. As of June 30, 2023, the total number of newly registered game users reached 48.68 million, up 26.9% year on year; average monthly paying users reached 1.13 million, up 20.2% year on year; average monthly active users reached 15.63 million, up 22.3% year on year.

The reason behind the impressive performance,A very important pointIt can be boiled down to the cost reduction and efficiency brought about by the support of AIGC technology.

In the short term, AI technology can further optimize game production links, release flexibility in cost reduction and efficiency, and promote supply-side quality and quantity improvements, thus driving demand side prosperity. In the medium to long term, AI-generated games may gradually become the main force in industry production. More integrated and innovative game products will continue to be launched, break through existing scenarios, gameplay, and imagination space, disrupt traditional game forms and industry chains, expand new boundaries of value creation, and thus open up the ceiling for industry growth.

Thus, China Mobile Games quickly seized this opportunity and applied AIGC technology to independent R&D and distribution business processes, improving game development and distribution efficiency while reducing R&D and distribution costs, and fully reducing costs and increasing efficiency.

Looking at business performance at a deeper level, it is mainly reflected in the following two aspects:

First, efficiency gains in game distribution and operation.

In the first half of the year, the company's distribution business revenue reached 1,217 million, up 19.3% year on year; game development business revenue reached 259 million, up 42.0% year on year; and IP licensing business revenue reached 59.81 million, up 94.4% year on year. Relying on AIGC technology, the company has been able to reduce costs by 40% in dubbing and translation in the distribution field, and increase efficiency by more than 50% in terms of copywriting.

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Focusing on product performance, the number of pre-orders for “Legend of Sword and Fairy: Sword and Love” had already exceeded 8 million on all platforms before it went live, and like several other “Ultraman: Assembling”, “Star-Eating: Dawn”, and “My Imperial Sword Diary” products, they all appeared on the TapTap Hot List, the free list of Apple Stores in mainland China, and the top seller list in the first month of launch, which is enough to reflect the popularity and market recognition of the company's games.

Generally speaking,If game products rank high on the bestseller list, then it means that the sales volume of games will also increase accordingly, thereby bringing more revenue and profit to the company, which can be seen as a positive sign of the company's performance growth.

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In addition, other games that have already been launched and operated, such as the Chinese mobile game “The Legend of Conqueror”, “Doulo the Continent - The Return of Doom”, “One Slayer: The Last Airbender”, and “Dynasty Warriors”, and “Dynasty Warriors”, etc., have maintained steady operation with a stable user base and good reputation, and the game's IP value continues to be released, providing stable financial support for the company's development.

Second, cost reductions in game development and production.

Xiao Jian, executive director, chairman and CEO of China Mobile Games, said that team adjustments for independent R&D have now been completed, and R&D expenses will drop somewhat in the second half of the year. At the same time, the company has applied AIGC technology to independent R&D and distribution, and has reduced costs and increased efficiency, reducing outsourcing costs by more than 30%.

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Take “Fairy Sword World” as an example. As an open world metaverse game with the theme of Guofeng Xianxia being developed by China Mobile Games, the company relies on its rich experience and accumulation in open world RPG technology and virtual reality technology research and development to implement AI technology in the development of “Fairy Sword World”.

It is worth mentioning that at present, China Mobile Gaming is not only one of Baidu's first ecological partners, but has also reached extensive cooperation with Microsoft in information technology fields such as cloud computing, big data, and Azure OpenAI, which means that “Fairy Sword World” will receive priority support from leading AI technology, take the lead in deploying AI big model technology locally, and customizing and training the “Fairy Sword World” special language model to bring players a more immersive gaming experience.

According to reports, “Fairy Sword World” has received both mobile and PC versions. It will conduct multiple rounds of pre-launch testing in the second half of 2023. It is expected that it will obtain a version number and go live within the year, becoming a new engine for the company's performance growth.

Looking at long-term potential growth in three dimensions

Static financial data explains more about the company's past business results and current situation. Judging a company's long-term value still depends on its own long-term strategic plan.

China Mobile Games attaches great importance to R&D investment. Based on AIGC, China Mobile Games continues to strive to launch better and more attractive game products, improve user experience and satisfaction, and maintain competitiveness in the industry. Data show that in the first half of the year, game development revenue was 259 million yuan, an increase of 42.1% over the previous year.

The company's emphasis on R&D not only reflects the company's preparations for future development, but also lays a solid foundation for the company to seek multi-dimensional growth opportunities. From a current perspective, the company uses products as its heritage and explores potential growth in the following three main directions:

1.Seek top IP and enrich our own reserves

Although leading IPs have a broad audience base and high influence, the cost of acquiring this type of IP is quite high. How can we balance costs and revenue? This is also a problem faced by most game companies in the industry.

However, in the view of Chinese mobile games, IP is not only the foundation of the product, but also a core element for attracting players. Xiao Jian once said, “IP is actually a cultural label, a value, and even a belief.”

Currently, the higher the quality of IP, the higher its scarcity value. IP has become the core means of building barriers in the game industry. Therefore, although the cost of cooperation with Headend IP is currently relatively high, the natural popularity and fan effect brought about by Headend IP can effectively hedge against costs. To some extent, this also explains why mobile games have always used top IP as the first choice for game adaptations.

Since mobile games clarified their IP gaming strategy in early 2014, the company has continued to enrich its IP reserves. Up to now, the number of IPs owned by China Mobile Games has reached 132. Based on its extensive IP resources, Chinese mobile game companies are also more flexible and active in developing their own games, and have the potential to create a hit.

Currently, Chinese mobile games still have a number of self-developed and cooperative games based on top IPs that will be launched within this year or at the beginning of next year. These include “Fairy Sword World”, “Legend of Sword and Fairy: A New Beginning,” the large-scale MMORPG mobile game “Fairy Sword: The Beginning,” which has entered the final testing stage, and the “Legend of Sword and Fairy” VR game, which will launch on Dapeng VR and PICO VR platforms next year.

Currently, it seems that mobile games have returned to their own pace of game distribution. In the future, they will continue to launch high-quality new products based on top IPs to the market, which may provide a steady stream of impetus for performance growth.

2.Going overseas to seek incremental growth, increasing the global layout

“If you don't go overseas, you're out” has inspired many domestic game makers to embark on a journey overseas without hesitation. At a time when domestic games are entering the stock market, finding a second growth curve for games overseas is an urgent matter for many game manufacturers.

Since 2021, Chinese mobile games have increased their distribution efforts in overseas markets. “SNK: Fighter Generation”, a mobile game developed and distributed by itself in Hong Kong, Macao, Taiwan, Singapore, and Malaysia in February of this year, was first on the free list and fifth in the bestseller list in the first month of launch; it also received the highest ranking on the Google Play free list.

Currently, the overseas stock of Chinese mobile games is still “rich,” and new products such as “Zhenhun Street: Born to Be King”, “Dynasty Warriors”, “Legend of the New Sword and Fairy: Sword Waving a Message”, “Doulo Continent: Shrek Academy”, “The New Three Kingdoms”, “The Legend of Cao Cao Cao”, and “DreamWorks All Stars” will be launched in overseas markets one after another. The replacement of old and new games continues to revitalize the overseas business of Chinese mobile games. Management also stated that it is expected that overseas business will usher in new growth in 2024.

3.Deeply lay out the entire IP industry chain to create new performance growth points

According to the data, IP derivatives have grown into a new 10 billion market on many platforms. At the same time, domestic emerging forces are continuously pouring into the market, Guochuang IP has been very popular since the beginning of the year, and its commercial value continues to rise.

In recent years, domestic game companies have also paid more and more attention to and invested in the derivatives business, and some companies have even raised it to an important strategic level. However, from the consumer side, the public also has a certain enthusiasm for game IP derivatives.

However, as for how much money can be made by doing peripheral business, take Mihayou, which has been strong in the IP derivatives business for a long time, as an example, has estimated sales of over 15 million in just one month for a certain character, Genshin. For some game companies that are doing business in the surrounding area in full swing, annual revenue of hundreds of millions of dollars should not be a problem.

For example, in the first half of this year, China Mobile Games deployed in-depth cooperation throughout the “Legend of Sword and Fairy” IP, covering the fields of games, film and television, animation, content literature, music, derivatives, and live entertainment, and collaborated with top partners in related fields to jointly build the Fairy Sword IP universe. According to reports, Sword Sword's first fan community, “Fairy Sword League”, opened registration to users in April.

For Chinese mobile games, in addition to the derivative revenue it brings, IP periphery can also help strengthen the stickiness between IP and fans, so that fans can have more emotional projections and links in reality, and expand the influence of IP through peripheral production, further empowering the company's main business.

epilogue

Looking at it from a broader perspective, the game industry is generally picking up, but the future of game companies is bound to diverge.

What cannot be ignored is that the game industry is undergoing a transformation from pursuing quantity to pursuing quality. On the one hand, demand side players' expectations for games have increased, and on the other hand, competition in the game market has intensified. In the first half of the year alone, a total of 100 new games were officially launched in China, indicating that low-quality games may gradually come out.

Similarly, this is also more helpful in “screening” high-quality game companies, and may strengthen trends such as product and operation refinement, breakthroughs overseas, and AIGC empowerment, bringing more definitive opportunities. In the midst of this, the business logic of Chinese mobile games is highly compatible with it, and it may be hoped that they will reap better growth from it.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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