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Insights into CMGE (0302. HK) 2023 Financial Results: Rich Reserve of New Games Set to Drive Significant Business Growth

Published 08/04/2024, 07:58
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HONG KONG, Apr 8, 2024 - (ACN Newswire) - - CMGE (Stock code: 0302. HK), a game operator listed on the Hong Kong Stock Exchange, recently released its annual financial report for the year 2023. The report revealed that the company recorded a total revenue of 2.6 billion yuan during the period. Its adjusted net profit reached 5.379 million yuan, marking an overall shift from previous losses to profitability. This represents a year-on-year growth of 103%, which can be attributed to the comparatively low base in 2022. Moreover, the company's operating profit, after accounting for non-operating income and expenses, stood at 107 million yuan.

Mini-games Emerge as New Growth Driver; Legend of Sword and Fairy IP Licensing Expands

Among CMGE's three core business segments?game publishing, game development, and IP licensing?the revenue from game publishing amounted to 2.13 billion yuan, constituting 81.9% of the total revenue. However, it experienced a slight year-on-year decrease. This decline can primarily be attributed to the postponement of the release of certain new games in the latter half of 2023, leading to the deferral of revenue contribution to 2024. Nevertheless, this delay lays a crucial groundwork for substantial growth anticipated in 2024.

An illustrative case is the release of Soul Land: Shrek Academy. Co-published by CMGE and Tanwan Games, the game secured a license in July 2023 and initiated a reservation campaign in August, attracting over 6 million sign-ups. Officially launched on January 31, 2024, the game swiftly ascended to the top of the free list on the Apple (NASDAQ:AAPL) Store and the popular list on TapTap within the first month of its release.

Industry experts noted that one of the emerging opportunities in the game industry in 2023 was the rise of the mini-game market. This trend resulted in the success of several popular games with monthly revenue exceeding 100 million yuan. CMGE capitalized on this new wave by launching several successful mini-game products, including Legend of Sword of Nine Regions and Fire at Will, which generated over 600 million yuan in revenue. Among these games, the idle game Legend of Sword and Fairy: A New Beginning, developed in collaboration with KingNet, stood out for its consistent top ranking on WeChat's mini-game best-selling list.

In 2023, the widespread popularity of ChatGPT injected new momentum for game research and development (R&D) through the application of AI large models. Meanwhile, CMGE's self-developed games generated a total revenue of 215 million yuan, with an R&D investment of 370 million yuan. Despite this investment, R&D costs were actually 29.7% lower compared to the previous year, thanks to the application of AIGC technology in in-game art production and copywriting, which improved R&D efficiency.

For instance, the much-talked-about open-world game Sword and Fairy World features AI-powered NPCs whose behavior and interactions are influenced by the natural environment. This creates a lifelike social ecosystem that significantly enhances the game's realism. Additionally, AI-powered features such as character creation, voicing, action generation, and AI-enhanced user-generated content provide players with an even more immersive and interactive experience at a lower cost.

The adage "content is king" still holds true in the game industry, where premium game quality remains a top priority. Intellectual property (IP) is a fundamental element in the creation of high-quality products and plays an essential role in attracting players to a game. According to Xiao Jian, Executive Director, Chairman, and CEO of CMGE, "IP represents a kind of cultural label, a kind of value, and even a kind of faith."

In 2023, CMGE's IP licensing revenue surged by 75% year-on-year to hit 257 million yuan. This reflects the growing value of core IPs in the current premium quality-oriented era. Over the past few years, CMGE has been focused on developing its flagship IP, Legend of Sword and Fairy, by partnering with leading companies in various industries to establish a comprehensive Legend of Sword and Fairy IP universe and ecosystem. This includes a wide range of areas such as gaming, film and television, animation, literature, music, derivatives, and location-based entertainment. The ultimate goal of these efforts is to unlock the full potential of this IP. In gaming, CMGE partnered with KingNet to release the idle game Legend of Sword and Fairy: A New Beginning in 2023. In film and television, the company worked with the online video site iQIYI and other companies to produce the TV drama Sword and Fairy IV (based on the game Legend of Sword and Fairy IV), which was aired on the iQIYI platform in January 2024. Additionally, CMGE collaborated with Penguin Pictures to produce Sword and Fairy, a TV drama based on the game Legend of Sword and Fairy VI, which was exclusively aired on the Tencent (HK:0700) Video platform in January. Furthermore, Sword and Fairy I (based on Legend of Sword and Fairy I) is to be aired exclusively on the Tencent Video platform soon.

Throughout 2023, CMGE has consistently aligned its development with the trends of the game industry. Currently, the industry is experiencing a new phase of growth. However, the rationale driving this growth is evolving: A shift towards focusing on core business and fostering high-quality development is ushering in a period of "rational exuberance", replacing the extensive growth that characterized the previous decade. Dedicated to high-quality and premium product-driven development, the company, with its three major business segments?IP game development and global publishing, proprietary IP operation, and the Chinese-style metaverse platform, is advancing towards the future with a focus on quality-oriented growth.

Poised for Significant Growth: Upcoming Sword and Fairy World Launch and Rich Product Reserves

As we have just entered 2024, it seems the game industry continues to offer new opportunities and challenges. CMGE is ready to stride forward by launching a variety of new products, which marks the onset of a new cycle of sustainable, high-quality growth. The company is confident in its ability to navigate the ups and downs of the economic cycle.

To begin with, mini-games, representing a new and growing market, are expected to continue expanding. According to current research, 84% of respondents believe that gamers are experiencing increasing fatigue and seeking lighter, more diverse gameplay options. This shift in gamers' psychological demands aligns with the characteristics of mini-games. In fact, the market size for China's mini-games exceeded 40 billion yuan in 2023 and is projected to surpass 60 billion yuan in 2024, according to data released by Ocean Engine, a leading digital marketing platform in China.

In 2024, CMGE will leverage its highly popular and influential game IPs to launch more than 10 mini-game products, including Country Love Story, Sword and Fairy: Wen Qing, and Naruto: Konoha Masters. These mini-games, which are mainly adapted from the App games, already have a solid reputation to build on. By combining "reputation, theme, and gameplay", CMGE aims to address the pain points of mini-game users and create phenomenal products that cater to their preferences.

Secondly, CMGE is set to launch in 2024 its highly anticipated open-world game, Sword and Fairy World, which represents the culmination of three years of dedicated development efforts. This game, independently developed and published by the company, is an open-world experience that immerses players in the Chinese-style Xianxia fantasy genre. In June 2023, it obtained a license for launch on both mobile and PC platforms and kicked off a reservation campaign that attracted over 4 million sign-ups. It has been revealed that a billing test will be conducted soon to verify the commercial viability of the product before its official launch. The game is expected to be released within 2024.

The growing popularity of the Chinese style highlights the appeal of traditional culture. Sword and Fairy World, a Chinese-style Xianxia game, invites players into a world rich in traditional elements. Offering a myriad of engaging storylines, including the main plot, character-specific subplots, and side quests, the game is designed to allow players to delve into the depths of the human spirit. Players can perform superhuman feats, such as soaring through the skies and delving underground, to explore various realms, experiencing the exhilaration of unrestricted exploration. With its enthralling gameplay and deep cultural roots, the game is expected to be a major revenue generator in 2024.

Finally, CMGE has unveiled a lineup of highly anticipated blockbuster games scheduled for release in 2024, which will further bolster the company's growth prospects. In terms of IP game publishing, the success of Soul Land: Shrek Academy, launched on January 31st, has already exceeded 100 million yuan in monthly revenue. The first half of the year will witness the launch of Fight Break Spheres and Soul Land: Reversed Spacetime. In the latter half, gamers can anticipate the release of new IP titles such as Daily Life of Chat Group, Naruto: Konoha Masters, and New Romance of the Three Kingdoms: The Legend of Cao Cao. Regarding independent R&D, Wenmai Interactive, a wholly-owned subsidiary of CMGE, will join forces with 37 Interactive Entertainment to promote its first-ever Three Kingdoms-themed strategic game, World of Castellan, with the goal of sustaining revenue growth and profit contribution for 2024. Furthermore, the release of the second Three Kingdoms-themed strategic game, Code: Lord, is scheduled for the latter half of the year. Additionally, Hoop City:3V3, an eSports game developed by Shanghai Zhoujing, a holding subsidiary of the company, is slated for an official launch during the summer vacation period.

In its research report, Guosen Securities highlighted the game industry's similarity to Warren Buffett's metaphor of "wet snow and a really long hill", suggesting potential for sustained and profitable growth. In 2023, the game market experienced the normalization of game licensing, signaling a return to the industry's origins and the commencement of a fresh chapter emphasizing innovation and entrepreneurship to navigate a new economic cycle. Moving into 2024, the game market entered a phase of rational exuberance propelled by high-quality games. It is only through the introduction of top-tier new products that companies can capitalize on this new growth cycle.

According to analysts, CMGE, a forerunner in IP games, possesses extensive IP reserves conducive to achieving high-quality and premium product-driven development. Indeed, the company has amassed a wealth of new, high-quality IP games across its three major business segments: IP game development and global publishing, proprietary IP operation, and the Chinese-style metaverse platform. In 2024, the company will launch these new games into the market, which, coupled with revenue contributions from longstanding products, is anticipated to bolster sustained high-growth performance.

Xiao Jian, CMGE's Executive Director, Chairman, and CEO, stated at the Results Presentation that, "We are really confident about our prospects for 2024. With the upcoming game launches in both domestic and overseas markets, we are optimistic about achieving excellent results and driving significant revenue growth this year."

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