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Ourgame says US$66 million acquisitions based on potential over earnings

Wednesday, 31 January 2018 06:08
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Chinese gaming giant Ourgame Holdings Ltd says the planned RMB425 million (US$66 million) acquisition of three mainland China-based companies engaged in the development of mobile gaming products is based on potential rather than current performance.

Outlining the reasons for the outlay in a filing to the Hong Kong Stock Exchange on Tuesday, Ourgame said the companies – Shenzhen Xunyou Internet Technology Co, Nanjing Haoyun Meicheng Electronics Technology Co and Xiamen Yiwantang Internet Technology Co Ltd – provide significant competitive advantages despite their projected price-earnings ratio for 2018 lagging behind the range of recent comparable transactions.

“Since the targets were carrying out research and development, testing and various roll-outs and updates of the games during initial business operations in 2017, the net profits of the targets for 2017 do not reflect clearly their earnings potential,” Ourgame said. “Towards the end of 2017, each of the targets’ earning potential has become more promising, which could be seen from their increasing market share, widening geographic coverage as well as expanding product base in the different games being rolled out.

“Accordingly, the company has determined the consideration for each of the [companies] after arm’s length negotiations with the respective vendors based on its assessment of the relative competitive strengths of each of the targets and their potential for future growth, as opposed to any single financial metric.”

Ourgame announced earlier this month that its wholly-owned subsidiary Tianjin Shengyou Shidai had entered into a share transfer agreement with Shenzhen Xunyou Internet Technology Co to purchase 100% of the equity interest in the company for RMB150 million (US$23.3 million), with Nanjing Haoyun Meicheng Electronics Technology Co for RMB220 million (US$34.1 million) and with Xiamen Yiwantang Internet Technology Co Ltd for RMB55 million (US$8.5 million).

Shenzhen Xunyou Internet Technology Co is said to develop and operate mobile games focusing on mahjong, poker and other card and board game products in Yongzhou, Hengyang, Shaoyang and other cities in Hunan province.

Nanjing Haoyun Meicheng Electronics Technology Co operates “20 to 30 China regional card and board games” including mahjong and poker in Jiangsu, Zhejiang, Shanghai, Anhui, Guangdong and Hebei.

Xiamen Yiwantang Internet Technology Co Ltd operates “approximately 10 China regional card and board games such as mahjong and other card and board game products” covering Fujian province, with Ourgame stating that it held market share of more than 70% of similar mobile games in Northern Fujian.

Expanding further on the acquisitions in a note to investors, Ourgame said that “unlike most of the small-scale online games companies in China, the targets have strong resources in promoting and operating their game products in their respective products coverage territory.”

It added that the companies “develop and operate new mobile games to cope with the fast evolving changes in the regional markets, and develop and update software programs regularly to fix security vulnerabilities and improve the performance of the mobile games.”

Ourgame recently announced plans to expand its World Poker Tour brand – which it purchased for US$35 million in 2015 – across Asia with a particular focus on Japan. It is also planning to develop 10 eSports arenas in China and the United States by 2019, including the Esports Arena Las Vegas at Luxor Hotel and Casino on the Las Vegas Strip, which is scheduled to open on 22 March 2017.



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