CMGE’s (0302.HK) international revenue seven-fold increase: an emerging growth driver

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HONG KONG, April 13, 2022 – (ACN Newswire) – – Despite regulation and suspension of new gaming licenses in China, CMGE (0302.HK) raw 3,957 million RMB in 2021, representing a 3.6% year-on-year increase, according to its 2021 annual results report. The company’s gross profit margin increased from 32.0% in 2020 to 37.2% in 2021 , while the gross margin totaled 1,473 million RMBan increase of 20.5% year-on-year.

Jian XiaoManaging Director, Chairman and CEO of CMGEsaid during the performance meeting that several games due for release in 2021 have been delayed due to failure to obtain the game license as planned, as well as larger development and research contributions, led to a decline in 2021 adjusted net margin of 21.9%

With great performances in 2020, CMGE the performance in 2021 is practically superior to that of most of the comparable companies.

01. The company’s games have achieved international success with year-over-year international game publishing revenue increasing 7,260%, and another engine of growth is emerging.

CMGE the financial statements show that its profits are mainly derived from the development and operation of IP-based games, 905 million RMB from which profits from its game development are derived, representing a year-over-year increase of 23.9% and representing 22.9% of its annual commercial revenue, and 232 million RMB from which derives profits from its intellectual property licensing, which doubled from last year, representing a year-on-year increase of 106.9%, which shows the abundant reserves of intellectual property and the outstanding performance of its self-development strategy.

It is to highlight that CMGE earned income from 459 million RMB overseas, a year-on-year increase of 72 times. With this growth, its international revenue increased to 11.6% in 2021 from 0.2% in 2020, clearly representing great progress in its overseas gaming strategy.

According to an insider, it is inevitable that domestic game developers will make inroads by surviving in international markets under tighter regulations. Also, to survive in international markets, the company faces challenges in all aspects such as product research and development, operation, marketing and organization. Surviving in international markets has become a key indicator to measure whether a game developer is competent.

During the performance meeting, Jian Xiao stated that CMGEhaving engaged in international game markets, has provided several game products in hong kong, Macau and Taiwan, South East Asia, Europe and America and established professional localization teams in product operation, marketing, user service and advertising. With the success of several products in practice, international markets will be further developed, the revenue of which will also increase.

02. The company laid a solid foundation to meet the challenges with a 48.9% increase in R&D contribution year-on-year for the core competency of excellent self-developed products.

Research and development is essential for excellent products, and CMGE financial statements shows that it is engaged in research and development. As indicated by a data set, CMGE has an R&D team of 624 professionals at the end of the period, representing an increase of 30.0% year-on-year; its contributions to R&D go from 208.6 million RMB in 2020 for 310.7 million RMB in 2021, representing a year-over-year increase of 48.9% and representing 7.9% of company revenue.

CMGE also invested in major game developers to grow the games business. According to the financial statements, CMGE has invested in over 20 game developers directly or through convertible bonds in recent years.

With its investment, merger and self-development, CMGE R&D gradually became mature with five major game types – digital games, platform games, strategy games, esports games, and card games, and several new R&D studios and subsidiaries were also established.

In the long term, enhanced R&D will establish a solid foundation for continued product development for a game company.

Jiao Xiao believes that as the game industry becomes more restricted and regulated, game companies need to pay more attention to high-quality, cross-platform, long-cycle products and take advantage of one game from multiple platforms. In addition, companies need to attract more loyal customers and improve user loyalty based on worldview and games IP, social function and other factors.

Driven by technologies, game developers should develop more quality products to meet the new demands of gamers. The game “Sword and Fairy: World” self-developed by CMGE to come out is a model.

“Sword and Fairy: World”, based on the worldview and intellectual property of “Sword and Fairy”, is an immersive open-world RPG where players have great freedom of choice. The game is available on multiple devices including PC, console, mobile, and VR. The art of the game meets the VR standard to provide the best immersive experience for gamers. CMGE expects “Sword and Fairy: World” to become a successful strategy game with an annual turnover of more than 3 trillion RMBa high rate of profit and a long life cycle.

03. The company expects a bright future as returns of internally developed products in international markets will begin after major games are released.

Following, CMGE will release a series of self-developed products and further promote its strategy in international markets to win more reputation among international players.

CMGE are expected to release several new licensed games in the first half of 2022, including “A New Record of a Mortal’s Journey to Immortality”, “Ultraman: Assembly”, and “All Star Fight” which were released in January.

Besides, CMGE also eagerly awaits the licensing of several major new games including “Sword and Fairy: Wen Qing“, “Rakshasa Street: The chosen“, “Cultivation Fantasy” and “The Daily Life of the Group Chat”.

As to when the license will be granted, Jian Xiao is of the opinion that the reason why the authority has stopped granting gambling licenses is mainly related to the improvement and revision of the gambling protection system for minors. In the long term, the government will always support the healthy development of the game industry.

In addition, the flagship “Sword and Fairy: World” is about to undergo the first test in August 2022 and will be released around the middle of 2023. And the electronic sports game “Code: Basketball 3V3” developed by Shanghai Zhoujing will be tested by the end of 2022 and will be released around the middle of 2023.

During the performance meeting, Jian Xiao said that given the status quo, the company’s R&D will really pay off in 2023 with a target that revenue from independent R&D activities will account for 40% or even more of total revenue in 2023.

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