At the beginning of 2024, there was a clear trend of continued recovery in the game industry, and many market data conveyed an optimistic signal.

According to the February monthly report on the Chinese game industry released by the Game Industry Committee and Gamma Data, the Chinese game market achieved revenue of 24.875 billion yuan in February, up 2.17% from the previous month and 15.12% from the previous year. Among them, the mobile game market performed well, with actual sales revenue reaching 18.255 billion yuan, up 3.21% month on month, up 17.88% year on year.

The supply side of the industry continues to show a positive trend. A total of 107 domestic online games were approved in March, and the number of domestic game editions has exceeded 100 for three consecutive months. As policy impacts are gradually digested, the gaming sector will have clear opportunities for valuation repair.

At present, the game industry has left a period of rapid growth and has entered a stage of refined, refined, and long-term development. As a leading domestic boutique game developer, Celadon Gaming (06633)'s long-term operating capability has already been verified by performance, and the market market seems to have plenty of room to “squat and jump” in the future.

Steady long-term operation, intensive cultivation and careful work to build a player ecosystem

Since its establishment 11 years ago, Celadon Games has always been committed to building the ability to integrate research and operation, and has developed and distributed a variety of boutique games, such as “Mysterious Maze”, “Ares Virus”, and “The Strongest Snail”.

According to financial data, for the full year of 2023, the company achieved revenue of 906 million yuan (the unit is RMB, same below), an increase of 43.7% over the previous year; gross profit of 558 million yuan, an increase of 32.2% over the previous year. The gross margin was 61.6%, and profit performance continued to be strong.

As of December 31, 2023, the company had accumulated over 88.34 million registered players, up 11.81% year on year; the average number of monthly active users was about 2.48 million, up 55.36% year on year; the average number of monthly paying users was about 401,400, up 87.78% year on year; ARPPU also reached RMB 302.

A high-quality player community can increase user stickiness and further expand the number of players through word of mouth among users. As of December 31, 2023, the company had a total of 13.3587 million celadon iron powders on WeChat, QQ and TapTap, an increase of 25.71% over last year.

During the reporting period, the company fully exploited the revenue potential of existing games and obtained stable revenue through long-term operation. The flagship game “The Strongest Snail” has been linked to various IPs such as “Master Chef” and “The Forbidden City” to effectively increase players' activity and retention. Up to now, “The Strongest Snail” has accumulated sales of more than 3 billion yuan, and the game has accumulated more than 25 million registered players. By November 2023, it had reached 3 million downloads on TapTap; in the first half of 2023 alone, the game contributed 210 million yuan in revenue. In the future, with the launch of the H5 version of “The Strongest Snail”, the game will continue to increase the company's performance.

In terms of new tours, the company launched “Demon Project” during the year. This is a popular turn-based card game with a unique style. It was created by the original team of the company's classic self-developed game “Endless Adventure”, which will bring diversified revenue to the company;

“Time Travel Agency” inherits the unique tone produced by Celadon, but compared to its predecessor, “Time Travel Agency” has iterated on gameplay and social aspects, and uses a rare “infinite flow game” gameplay combining Rogue-like RPGs, cards, and self-propelled chess, which can be described as a positive test for celadon games.

In addition, new games such as “Legend of Sword and Fairy” and “Magic Card Girl Sakura: Memory Key” were launched during the year, driving the company's authorized game business revenue to increase 963.7% year-on-year to 366 million yuan. Among them, “Legend of Sword and Fairy” focuses on love cards that are high-definition reproductions of classic storylines. It broke through the “social shortcomings” of traditional card games with its unique card+RPG+SLG diversified gameplay, and was ranked No. 1 in the iOS free game ranking and number 14 in the best seller list after launch; “Magic Card Girl Sakura: Memory Key” is a girl-style mobile game with Magical Sakura IP. It features the Q version of the Kozakura Online Blind Box. It received enthusiastic responses after it went live in September, and further reached the top of the iOS free game download list. The company's layout for women on the racetrack has been broadened.

During the reporting period, the company's existing games such as the Rogue-like RPG “Mysterious Maze”, the survival RPG “Ares Virus”, and the self-developed “Endless Adventure” continued to contribute stable revenue. As new games with subsequent reserves enter the market, celadon games will gain sufficient momentum for upward growth.

Actively promote quality overseas, and there is plenty of momentum for global growth

Overseas business is undoubtedly one of the highlights of Celadon Gaming's financial report. According to the Zhitong Finance App, during the reporting period, the company adopted an active overseas strategy, comprehensively deepened its global layout, and continued to increase in the scale and share of overseas revenue. In 2023, the company's overseas revenue was 258 million yuan, a year-on-year growth rate of about 61.4%, reaching 28.5% of total revenue.

During the year, Celadon Gaming accelerated the launch of many of its games overseas. For example, “The Strongest Snail” was launched in Thailand in January 2023, topping the Thai free-to-play game list and topping the iOS bestseller list; in June 2023, “The Strongest Snail” ushered in the anniversary of its launch in Japan and reached the top 30 best sellers; in August, the game was also launched in the US, Canada, Australia and New Zealand, topping the iOS free game rankings in many places; “Magic Card Girl Sakura: Memory Key” was launched in Hong Kong, Macau and Taiwan in October 2023 All three regions are on the iOS bestseller list Top 5.

In February 2024, the group released the casual game “Fat Goose Gym” in Japan. When it went live, it topped both the Japanese iOS free game rankings and the Google Play free game rankings.

In the future, the company plans to expand market coverage in Southeast Asia and the multi-lingual European region with the flagship game “The Strongest Snail”, and popular existing games such as “Time Travel Agency” and “Enchantment Project” will also be launched in Hong Kong, Macao, Taiwan, and Europe and the US.

In recent years, going overseas has become an important growth engine for domestic game manufacturers. In 2023, the actual sales revenue of games independently developed by China in overseas markets reached US$16.366 billion. Compared with domestic mobile games accounting for nearly 75% of the game market, global mobile games account for only 45% of the game market, and there is still plenty of room for improvement in penetration.

Looking forward to the future, as the overseas layout continues to improve and the competitiveness of overseas business continues to increase, Celadon Gaming is expected to turn the overseas market into its second growth curve.

The cross-category layout is gradually being improved and waiting for future potential to be released

In terms of subsequent product reserves, Celadon Gaming focuses on differentiation as the core to create potentially popular items with differentiation advantages. Currently, the company's mobile mobile game products cover applet games, placement games, rogue-likerPGs and other RPGs, spanning various categories such as story cards, women's casual, parkour, ACT, placement, and simulated management. The rich product layout will help the company cultivate new player groups in more vertical market segments.

In 2023, various reserve games such as “Knight Rush”, “Ares Virus 2”, and “Lost Light” (previously known as Project D) received editions. Among them, “Ares Virus 2” is an adventure survival RPG, using a top-down perspective and a unique and fresh ballpoint pen style, and has a fun, brain-burning decryption gameplay; “Knight Rush” combines Roguelike elements with an action game, providing an easy gaming experience; “Lost Light” is a pixel-style pigeon mobile game that combines maps and exploration Card development gameplay allows players to break through levels through free skill combinations explore.

It is worth mentioning that the post-apocalyptic SLG game “Project E”, which is currently being prepared, is an innovative SLG with celadon characteristics. It has a differentiating advantage from most SLG games currently on the market, and its global annual turnover is expected to increase significantly from “The Strongest Snail.” Judging from the development progress, “Project E” is expected to conduct substantial large-scale testing and paid testing in the second half of next year.

In the follow-up development of existing games, mini-program versions of existing games such as “The Strongest Snail”, “Legend of Sword Waving”, “Magic Card Girl Sakura: Memories of the Key”, and “Time Travel Agency” will be launched one after another, and various mini-program games such as “Bullet Army”, “The Legend of the Lords”, “The Three Kingdoms”, “Project P95”, “The Royal Family Guard”, and “The Legend of the Qin People” will be launched one after another.

The company will continue to introduce and license a variety of games for distribution at home and abroad, such as preparing for the testing and launch of the tower defense game “Project: Totem” and the placement game “Project V” in Europe and the US; testing and launch of the RPG game “Project L” in South Korea; and the addition of the authorized SLG game “Project T” and the survival social game “Project F”.

As the policy side continues to send positive signals, the gradual launch of the Celadon Game's subsequent new games will help launch a new cycle of growth in performance. The diversified product matrix will also become the company's content moat, further verifying the growth logic of long-term sustainable development.

epilogue

Looking ahead to the future market, Guoxin Securities said in a research report that the game industry's regulatory policy remains stable, game version numbers are normalized, and overall demand in the game industry is expected to continue to rise; Huajin Securities also pointed out that the game market's multi-track sales revenue performance is good, and the IP effect will create new growth space for the mobile game market.

As a Hakuba stock with great potential in the game sector, Celadon Gaming's valuation is currently at the bottom of history, and the long-term allocation is highly cost-effective. Under the trend where the product cycle and boom in the game industry are expected to both rise in 2024, celadon games will also usher in an opportunity for value revaluation with the arrival of subsequent new product explosions.