Net2Gather - Mobile Game Business

Turning loss into gain in full strength

Celestial Asia Securites Holdings (CASH), a HK listed company (1049), proposed to change its company name to ‘Net2Gather (China)’ in order to foreground the Group’s focus on the mobile online game business, and let the investors to better capture the investment value of ‘Net2Gather (China)’. When receiving our interview, Bankee Kwan, chairman and CEO of CASH, said the Group had a close relationship with the internet business as early as 1999. In 2005, the charging mode of the online game market in the mainland took shape, CASH spared no effort in the mainland market of mobile games. By unremitting endeavor in the mainland over the past years, a significant progress has been achieved. The Group has successfully ridden into the top 300 of the online game businesses in the mainland, which proved our effort has struck the right note.

With MOLI as impetus
Since 2005, CASH started to focus on the online game business in the mainland. Bankee Kwan pointed out that with MOLI, a company engaging in internet and mobile services in the mainland, as our driving force, the online game business sector in the mainland was carved out for the past six years. Now the number of our target registered users, aged from 18 to 35-year-old, has reached 40 million. That was absolutely a substantial achievement from our hard work. In the beginning, MOLI cooperated with individual providers of game development from South Korea and the United States. In 2007, a popular online game “CABAL” was released with online visitors amounted to 25 million. Meanwhile, the Group was trying to take the first step towards thorough independent R&D, and successfully developed the online game “King of Pirate”. It has been six years since then, the license right of the game kept extending worldwide and is still well received by the market. It verifies the Group has been equipped with the ability of independent R&D for online games; and due to raging issue of “online game hacking” in the mainland, the management was determined to turn to business operation of independent R&D. Take the third and fourth quarters of this year as an example, MOLI launched two self-developed online games, “Tales of Ocean Fantasy” and “Superhero”, rendering the users in HK and even the mainland virtual online worlds in two distinct styles, marking a milestone in the online world.

The upstream platform emphasizes the game content. The internet and mobile platforms were developed by MOLI and Oberon Media respectively and the content platform has already been formed. The middle-stream platform emphasizes enforcement. MOLI and Oberon Media are strengthened by the affiliation of Yole and the three formed a strong chain for the industrial implementation. The downstream platform emphasizes distribution channels. In addition to internet and mobile platforms, we are affiliated with two major distribution platforms, cable TV and satellite TV, to optimize and cover the entire downstream distribution platform. In the long run, the management will look for a suitable target to strengthen the industrial chain of mobile games in middle-stream and downstream by mergers and acquisitions. More importantly, the national policy is spot on. Last year, the central government officially ordered mobile/internet game related industries will come under the full authority of Ministry of Culture to avoid policies from different departments in the past. On the other hand, with the central government deciding to speed up the integration of telecommunications networks, cable TV networks and the internet, it is expected to be implemented by phases in five years.

Highlighting intrinsic investment value
An analysis report indicates that in the year 2011/2012, the growth rate of online games in the mainland will be between 26 and 28% due to four reasons: 1. Internet users of the mainland will grow rapidly in the next 5 years at a CAGR of 15%; 2. It is expected that a more convenient internet payment will certainly increase the ratio of paying users; 3. The continuing growth of the per capita disposal income will directly push the market ARPU higher. 4. The rate of demographic ageing is not as quick as expected and the mobile game market will be benefited. Macroscopically, both the Group and the industry need to be in sync with the national policy and national conditions. The gradual merging of the ‘three networks’ is just rendering the Group excellent opportunities for development. Bankee Kwan, who is a member of the Chinese People’s Political Consultative Conference Shanghai Committee and a consultant of Shanghai Network Committee, said not only is the Group one of the few Hong Kong enterprises who successfully participated in mobile game market in China, it is also the founding advisor of the Shanghai Internet Security Network Association, which helps increase different communication channels between the Group and the government, showing the remarkable and potential market competitiveness of the Group. From the perspective of value investing, he is confident that ‘Net2Gather (China)’ can fully highlight the advantage of the Group in operating the business of mobile/internet games in the mainland and in securing the added value of the significant future growth in the sector. The proposal of changing the company name will let investors have a clearer idea of the concrete investment value of ‘Net2Gather (China)’. At least, investors will no longer be confused about the investment focus of ‘1049’ and can be more confident in investing in the relevant stocks.