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CMGE Technology Group Ltd 00302

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Regulatory Talks Another Blow to the China Gaming and Internet Sector

Chelsey Tam Senior Equity Analyst

Analyst Note

| Chelsey Tam |

Several departments of the Chinese government have held talks with Tencent, NetEase platforms for gaming accounts rental and sales and gaming livestreaming platforms as per Caixin. To us, most notable during the discussions are new requirements around antimarket concentration, strengthening controls of in-app purchases, and game designs that induce addiction. Faced with growing regulatory uncertainty in domestic gaming, we expect Chinese gaming companies to speed up international market expansion, which is supported by the government, and could be a long-term margin driver because overseas app stores take a cut of 30% versus non-Apple app stores’ 50% in China. We maintain the fair value estimate of Tencent, NetEase and CMGE as we don’t factor in a substantial threat in the base-case scenario. This is another demonstration by the government of its ability to enforce stringent regulations on Internet companies, and our conversations with investors indicate they are unlikely to accumulate Chinese Internet stocks yet until the regulatory overhang is removed.

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Company Profile

Business Description

CMGE is an intellectual property-based mobile game operator and publisher in China with 31 licensed IPs and 68 proprietary IPs as of Oct. 9, 2019. This makes CMGE the Chinese independent mobile game publisher with the largest IP reserve. The company launched 97 mobile games in total from Jan. 1, 2016 to Oct. 9, 2019, with 73 games still on the shelf and 11 of the games have lifecycles of over three years. According to Analysys, the company earned the highest revenue generated from publishing IP-based games on a cumulative basis, and had the highest number of published IP-based games from 2016 to Oct. 9, 2019. The market share of CMGE in terms of mobile gross billings in 2018 was 1.5%, ranked ninth in China.

Zhongkang North Road, 10th Floor, Building No. 4
Shenzhen, China, People's Republic of
T +86 75588351991
Sector Communication Services
Industry Electronic Gaming & Multimedia
Most Recent Earnings
Fiscal Year End Dec 31, 2021
Stock Type
Employees 1,115