New stock preview | Industry recovery can't hide the decline in performance, after product discontinuation, how likely is Star Bond Entertainment's success in Hong Kong?

Recently, UNI-STAR INTERACTIVE HOLDING LIMITED (referred to as "Star Union") submitted its application to the Hong Kong Stock Exchange Main Board, with CICC as its exclusive sponsor. Public information shows that Star Union was established in October 2014 and is a gaming company focused on the small game segment. In the previous performance period, approximately 90% of the company's mobile game revenue came from small games. According to data from 2023, Star Union is the largest mobile game company in China based on revenue from small games; the second largest based on revenue from Chinese ancient style RPG games; and the largest based on revenue from idle games. In January 2025, driven by factors such as high user activity during the Spring Festival holiday and strong performance of new products, the gaming industry experienced a strong start, with various terminal markets achieving year-on-year growth. The "January 2025 China Game Industry Monthly Report" released by Gamma Data shows that the gaming market in China reached 31.077 billion RMB in January, with a month-on-month growth of 7.54% and a year-on-year growth of 27.65%. As the trend of fragmented leisure time continues, small games have become a promising growth track. The domestic market for small games is expected to reach 50 billion RMB in 2024, a 64% year-on-year growth. In the current high-growth opportunity in the industry, what kind of report card will Star Union deliver to the secondary market? Before listing, net profit turned negative, with revenue from two main games accounting for over 70% Looking at the company's performance in recent years, Star Union's performance is not very optimistic, with both revenue and profit showing a downward trend. In 2022, 2023, and the nine months ending September 30, 2024, the company's revenue was 5.675 billion RMB, 5.327 billion RMB, and 2.095 billion RMB, respectively; while annual profits were around 328 million RMB, 197 million RMB, and -47.167 million RMB during the same period. By channel, for the nine months ending September 30, 2024, the third-party distribution model contributed 65.9% of revenue, while the self-distribution model only contributed 34.1%. In terms of game sources, 74.5% of revenue came from self-developed games, while 25.5% came from licensed games. However, the company's key operational indicators performed poorly during the reporting period, with significant declines in various sub-indicators. As of September 30, 2024, revenue decreased by 51% year-on-year to 2.234 billion RMB, average monthly active users decreased by 63% to 20.443 million, average monthly paying users dropped from 965,000 to 546,000, and average revenue per paying user decreased from 526 RMB to 456 RMB. As of September 30, 2024, the company's cumulative registered players increased by 11% from 149,400 at the end of 2023 to 165,400. The decline in performance may be due to the company's heavy reliance on existing game products. Currently, the main revenue of Star Union comes from three games: "Tianjian Chronicle," "Jiuzhou Immortal Sword Legend," and "Alien Abyss: Great Spirit King," which generated revenue of 954 million RMB, 538 million RMB, and 400 million RMB respectively in the first nine months of 2024. "Shanhai Sword Path" recorded revenue of 147 million RMB, while "Dawn Summon" and "Alien Abyss: Awakening" generated revenue of 70.61 million RMB and 25.07 million RMB respectively. In terms of revenue, 45% of the revenue comes from self-developed "Tianjian Chronicle," while licensed game "Jiuzhou Immortal Sword Legend" and self-developed "Alien Abyss: Great Devil King" contributed 25.2% and 17.3% of revenue respectively. In 2022, 2023, and the nine months ending September 30, 2023, "Jiuzhou Immortal Sword Legend" and "Tianjian Chronicle" together accounted for 88.9%, 90.5%, 91.7%, and 70.2% of total revenue. In terms of expenses, research and development expenses increased over the years, reaching approximately 159 million RMB, 210 million RMB, 147 million RMB, and 166 million RMB in 2022, 2023, and the nine months ending September 30, 2024 respectively, mainly for internal game development. During the reporting period, sales and distribution expenses were 1.215 billion RMB, 963 million RMB, 700 million RMB, and 612 million RMB, accounting for 21.4%, 18.1%, 16.4%, and 29.2% of total revenue during these periods, showing a significant increase in the first nine months of 2024. As of September 30, 2024, the company only had 59.418 million RMB in cash and cash equivalents, indicating a tight cash flow situation compared to the 209 million RMB in the same period last year. However, the company's gross profit margin increased from 26.3% at the end of 2023 to 33.5%. Regarding the decline in profitability, Star Union admitted in the prospectus that the company's games are mainly free to download, with the majority of revenue coming from the sale of virtual items within the games. However, the company's main players, especially those attracted by the free play mode, are sensitive to the prices of virtual items, and the marketing strategies adopted by the company may not have the desired effect, resulting in adverse performance. The issue of a lack of follow-up product reserves becomes prominent Since the beginning of the year, the number of game licenses issued has remained high, and the market supply rhythm is good. In January, a total of 136 games received licenses, reaching a new high in recent years, with 123 domestic licenses and 13 import licenses. Companies such as Tencent, NetEase, 37 Interactive Entertainment Network Technology Group, Thunder, and Kaiying are all included. In February, 110 domestic games were approved, along with 3 imported games, covering both major and smaller companies. With the continuous release of industry product reserves, the market environment is expected to stabilize. It is understood that Star Union mainly focuses on small games that can be embedded in WeChat, TikTok, and other online platforms. Due to the trend of accelerating player lifestyles and increasingly fragmented time, these interesting, easy-to-learn, and convenient small games are popular and can provide rich and detailed gameplay similar to traditional app games.Bonjour, comment a va aujourd'hui?Currently, Xingbang Interactive has a total of 12 mobile games in operation, with the main revenue coming from the two games "Jiuzhou Xianjian Chuan" and "Tianjian Qiyuan". However, it is worth noting that the expected lifecycle of the company's games ranges from 54 months to 72 months, while "Jiuzhou Xianjian Chuan" has been in operation for about 62 months since its official launch, and "Tianjian Qiyuan" has been in operation for about 50 months since its official launch, already entering the second half of the lifecycle. Looking at the later product reserves, the game "Yijie Shenya: The Great Spirit King" which started promotion in July 2024 has an average monthly revenue of about 70 million yuan from July 2024 to January 2025. At the same time, the MMORPG game "Douli Jianghu" with a Chinese martial arts style story line, featuring large-scale national warfare and multiplayer battles, has accumulated revenue of about 68 million yuan since its promotion started in January 2025. These two games are expected to become the main contributors to future performance. Looking ahead, the company plans to launch 18 game reserves (including 15 self-developed games and three licensed games) by 2027, covering RPG, card games, SIM and SLG among other types. The company plans to launch five self-developed games and one licensed game in 2025, eight self-developed games and two licensed games in 2026, and two self-developed games in 2027. In addition, Xingbang Interactive has also made layout in the two major industry trends of going global and AI. According to the financial report, the company's research and development department has expanded to 17 independent research teams, and established an overseas distribution team in 2023, dedicated to releasing the company's games domestically and overseas. From 2022 to September 30, 2024, Xingbang Interactive has obtained revenue of 46.208 million yuan, 28.209 million yuan, and 24.248 million yuan in markets outside mainland China, significantly lower than the domestic market. The company's "Sun Dasheng System" uses generative AI to support optimizing game development. The system categorizes useful data from existing game products (including storylines, core gameplay, graphic design, and art style) into reusable and interl... (Unable to translate remaining text. Text too long, please divide it into shorter parts.)