Archosaur Games (9990 HK) Market leader in MMORPG, Expanding game portfolio to SLG October 19, 2020 102

PSR Recommendation: BUY Status: Initiation
Target Price: HKDHKD33.60

Investment Summary

Archosaur Games is a leading mobile game developer in China Archosaur Games was established in 1997, and is a leading mobile game developer in China. The company has intensive experience in developing web games, client games and mobile games. The company was once merged with Perfect world (A-shares) in 2004 and has become its core game studio. After the merger, the company started focusing on MMORPG games development and has developed multiple hit games such as Perfect World (完美世界) and Zhuxian (誅仙). The company has begun to deploy in the field of mobile games in 2013 and was separated from Perfect World in 2014. Since 2014, the company has successively launched popular MMORPG games domestically/ globally, such as Fantasy Zhuxian (夢幻誅 仙), Love & Sword (御劍情緣), The Castle in the Sky (天空紀元), Dragon Raja (龍族幻想) .

The company is a leading MMORPG game developer in China The company has strong game development capabilities, especially in MMORPG games. According to Frost and Sullivan, in terms of the total gross billings from self-developed MMORPGs in mainland China in 2019, the company actually ranks 3rd in the country, with market share of 5.6%. It is only slightly behind Netease’s 11.7% market share and is higher than Tencent’s market share of 4.0%. The company’s hit game Dragon Raja (龍族幻想) also has the highest MAUs in China in 2019. The above data and figures can clearly show that the company is one of the market leader in the MMORPG game sector.

The company’s mobile game reserve The company has ample reserves of game projects, and currently there are 8 games in the development stage. Among them, 3 of them are SLG strategic games. The growth potential of SLG genre game market is huge. The company’s business expansion to SLG game genre can potentially become a huge growth driven in the future and can also enrich the game categories of the company’s game portfolio for new user expansion. We believe that MMORPG games are more difficult to develop than SLG games as well as there are many similarities between two game genres from the R&D perspective. Therefore, we expect that the company’s professional R&D team to be competent in the development of SLG games.

The first to successfully introduce UE4 into mobile game development in China The company is one of the first developers to successfully introduce Unreal Engine 4 into China’s mobile game development industry and conduct secondary development. The game Dragon Raja (龍族幻想) in 2019 is China’s first true 3D MMORPG mobile game powered by the Unreal Engine 4. The company spends significant resources of R&D and its R&D expenses ratio is among the top comparing to its peer. The company’s strong mobile game R&D capabilities and high R&D investments have created a strong economic moat for the company and enables the company to survive and grow in the gradually refined Chinese mobile game sector.

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