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Understanding CMGE’s (0302.HK) Path to Stable Growth from its Mid-term Report

HONG KONG, Sep 4, 2023 – (ACN Newswire via SEAPRWire.com) – On August 28, CMGE (0302.HK) held its mid-term performance conference for 2023. Xiao Jian, the Executive Director, Chairman and CEO of CMGE, announcing H1 2023 results, said CMGE’s revenue reached RMB 1.535 billion, with a year-on-year growth of 24.6%; the profit attributable to the owner of the parent company during the period was RMB 56.824 million, and the net profit after adjustment was RMB 76.168 million, achieving a year-on-year turnaround.

In terms of the KPI, the monthly average active users of CMGE in the first half of 2023 increased to 15.627 million, with a year-on-year growth of 22.3%; the number of new registered users reached 48.683 million, with a year-on-year growth of 26.9%. The monthly average number of paid users and the monthly average revenue per paid user (ARPPU) also realized a year-on-year growth of more than 20%.

It is worth noting that the cost reduction and efficiency enhancement measures of CMGE have achieved new results continuously. Thanks to the application of AIGC technology, outsourcing costs in the independent R&D and distribution work of CMGE have been reduced by more than 30%, driving a decrease in the proportion of administrative expenses, while keeping the sales expense rate within 10%, further verifying the quality of growth.

In fact, in terms of a long term, CMGE has always been maintaining a stable rhythm, and its uniqueness lies in the stability. In several cycles, CMGE still maintains a consistent strategy and values: uphold the values of “integrity and trustworthiness, transparency and openness, deep thinking, and long-term strategy”, and adhere to the mission of “casting high-quality products with love”, becoming a company that is always full of love and creativity!

The stable operation of CMGE has become an example of long-term strategy: as a Chinese gaming company, CMGE deeply understands the needs of players, adheres to the unique advantages for a long time, insists on doing difficult and correct things, and relies on endogenous motivation to achieve long-term and stable commercial growth.

Long-term strategic layout: building long-term competitive barriers with IP as the core

The strategy of CMGE is to focus on IP and provide high-quality IP games for global players through independent and joint R&D, creating a highly competitive IP game ecosystem. It is understood that as the No. one player in the domestic IP game field, CMGE has outstanding advantages in accumulating copyright in IP game, including its own IPs represented by Legend of Sword and Fairy and Richman, as well as authorized IPs such as Rakshasa Street, One Piece, Dragon Ball Z, Hokage Ninjia, Hitman Reborn, and Soul Land.

“We believe that IP will definitely become an important resource and barrier to competition in the gaming industry,” Xiao Jian stated at the conference.

In the second half of 2023, in the game market, it has become a consensus that the content will be refined and the cost for traffic and customer acquisition will continue to rise. Under the long-term trend of this industry, the value of CMGE’ long-term layout around well-known IPs is accelerating to emerge.

According to the analysis of Anxin Securities, it is believed that IP games have relative advantages over non-IP games in terms of user acquisition, version approval, and profit potential. High IP awareness, wide fan base, and high “absorption” ability can effectively reduce the cost for game customer acquisition. IP has a clear worldview and mainstream values, and the version number has a higher “approval rate”. IP based medium to heavy games have a longer lifecycle and greater payment depth. In summary, IP games have a higher success rate than regular games.

The financial report shows that in the first half of the year, CMGE achieved the intellectual property authorization revenue of approximately RMB 59.81 million, with a year-on-year growth of 94.4%. Among them, in the development of the IP for Sword and Fairy, CMGE comprehensively covers games, film and TV, anime, content literature, music, derivatives, and live entertainment and other fields, and collaborates with top partners in related fields to create an IP universe for Sword and Fairy.

Long-term independent R&D: reserve AIGC technology and adhere to independent R&D of products

The gaming industry is shifting from a traffic-based one to a content-based one. With the deepening trend of high-quality products in the gaming industry, excellent products have become the focus of competition.

Independent R&D is necessary for creating high-quality products. In addition to consolidating the IP core advantages, CMGE is also continuously enhancing its independent R&D capabilities, increasing R&D investment, exploring core independent technologies, building its own R&D team, and forming major R&D teams such as Starry Sky, Wenmai Interactive, SoftStar Technology, and Zhoujing Network. Data shows that in the first half of 2023, the investment in the R&D of CMGE was RMB 266.9 million, with a year-on-year growth of 30.6%.

A typical example is Sword and Fairy World. In order to create the first open world metaverse game with the theme of Chinese Paladin world, CMGE took 3 years for independent R&D and have invested RMB 300 million totally. At the same time, CMGE actively explored the AIGC technology empowerment, became one of the first-batch ecological partners of Baidu’s “ERNIE Bot” in March, and reached cooperation with Microsoft in cloud computing, big data, Azure OpenAI and other fields in May to develop applications such as intelligent NPC and UGC+AIGC, so as to provide an immersive experience of “everything can interact” for players of Sword and Fairy World.

After years of persistent R&D and investment, CMGE is entering a harvest period of independently developed games.

In the second half of the year, the highly anticipated Sword and Fairy World has obtained a dual-end edition No. and is expected to be launched within 2023. At the same time, the integrated SLG game City Lord’s World developed by Wenmai Interactive has entered the final testing stage. It successfully obtained a version No. in February 2023, and is planned to be exclusively released by Sanqi Mutual Entertainment in Q4 2023; the high-quality competitive sports game All-people Free Style independently developed by Zhoujing Network also obtained a version No. in May 2023, and is expected to be launched within 2023.

Epilogue

Looking ahead to the second half of the year, CMGE still shows a trend of high certainty and steady growth.

In terms of distribution business, the first large-scale multiplayer role-playing mobile game Soul Land: Shrek Academy, which is developed based on the IP of Soul Land, will be launched by CMGE in Chinese Mainland in the second half of the year; Besides, a simulated mobile game adapted based on the IP of Rural Love, named Rural Love Story, will also be launched.

In terms of R&D business, multiple independently developed games of CMGE have obtained version No. and entered the final testing stage before being launched online, including City Lord’s World, All-people Free Style, and Sword and Fairy World.

In terms of IP operation, CMGE continues to explore the IP value of Sword and Fairy in film and TV, animation, and novels, and has reached a long-term strategic cooperation with Tencent Video to jointly create the race track of Chinese Paladin world and IP of Sword and Fairy; Collaborates with iQiyi on the film and TV drama Sword and Fairy IV; Collaborates with CITIC Publishing House to release a series of works on historical versions of Sword and Fairy as physical books. As the ecological value of IP universe of Sword and Fairy continues to expand, the growth space for IP licensing revenue is further opened up.

In 2022, due to the impact of the epidemic and version No., the China’s gaming market experienced a double decline in revenue and users for the first time in the past decade. However, according to the 2023 China’s Game Industry Report for the Period from January to June, the actual sales revenue of the China’s game market in the first half of 2023 was RMB 144.263 billion, with a growth of 22.16% month on month. Obviously, there are signs of a rebound in the gaming market.

The gaming market is still a large market with hundreds of billions of dollars annually. The emergence of new technologies such as AIGC has also brought new impetus to the industry. However, no matter how the gaming market changes, CMGE insists on putting players at the center and IP at the core, working steadily, releasing and producing every high-quality product to bring players the ultimate gaming experience. The time will eventually witness the victory of our long-term strategy.

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