Equity Analyst, LightStream Research

Farha Sabri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

CMGE is an IP based game operator and publisher based in China planning to list on HKEX on the 31st of October 2019. CMGE listed on NASDAQ in 2012, becoming the first Chinese mobile game company to list on an US stock exchange. However, in August 2015, CMGE was delisted from NASDAQ after being taken private by Pegasus Investment. In November of the same year, all the issued shares held by Pegasus Investment were acquired by CMGE Mobile Tech, a Chinese company. In 2018, CMGE acquired two other mobile game developers, Beijing Softstar and Wenmai Hudong. In its latest listing on the HKEX, at the midpoint of the offer price, CMGE would be raising HKD1,157m. At the mid-point of its IPO price range, CMGE will have a market cap of HKD5,675.1m and an EV of HKD5,697.5m.CMGE’s licensed IP involves popular names such as Naruto, Dragon Ball Z and One Piece. Accordingly, when looking at publishing IP based games, CMGE has continued to be the market leader, holding a share of 13.7% at present in terms of revenue and 9.3% in terms of the number of IP based games published. CMGE also has the largest reserve of licensed and owned IP based mobile games with 99 IPs under its belt. Its closest competitor in terms of IP reserves has only 21 IPs to their name. However, due to the dominance of heavyweight such as Tencent, in the broader industry CMGE held a 1.5% share in the Chinese mobile game market in 2018. Similarly, even in the mobile game publishing landscape, CMGE, coming in fifth place held a share of 3% in 2018 with the industry leader dominating the market with a share of 55.1% in 2018.<table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 724px;">Details of IPO</td></tr>
<tr>
<td style="width: 495px;">New Shares Offered</td>
<td style="width: 208px;">461,000,000</td>
</tr>
<tr>
<td style="width: 495px;">Capitalisation issue</td>
<td style="width: 208px;">1,660,842,186</td>
</tr>
<tr>
<td style="width: 495px;">Existing Shares Offered</td>
<td style="width: 208px;">139,157,814</td>
</tr>
<tr>
<td style="width: 495px;">Total Shares Outstanding</td>
<td style="width: 208px;">2,261,000,000</td>
</tr>
<tr>
<td style="width: 495px;">Offer as a % of Total Shares Outstanding</td>
<td style="width: 208px;">20.4%</td>
</tr>
<tr>
<td style="width: 495px;">Offer Price (HKD)</td>
<td style="width: 208px;">HKD2.19-HKD2.83</td>
</tr>
<tr>
<td style="width: 495px;">Trading Date</td>
<td style="width: 208px;">31st October 2019</td>
</tr>
<tr>
<td style="width: 495px;">IPO Price - Midpoint (HKD)</td>
<td style="width: 208px;">HKD2.51</td>
</tr>
<tr>
<td style="width: 495px;">Market Capitalisation (HKDm)</td>
<td style="width: 208px;">5,675.1</td>
</tr>
<tr>
<td style="width: 495px;">Enterprise Value (HKDm)</td>
<td style="width: 208px;">5,697.5</td>
</tr>
</tbody></table><div>
Source: Company Prospectus, LSR
On our estimates, CMGE is trading at a FY2 EV/OP multiple of 5.8x, at a discount to the peer average of 12x. The company’s revenue grew at a 2-year CAGR of 26.3% over 2016-18. While the GPM has been on a downtrend, OPM has performed on par with the peer average. The company has maintained favourable topline and bottomline performance and has a steady pipeline of games in store over coming years. In addition, CMGE is starting to bring its IP to the big screen by developing TV shows which are slated to be releasing from 2020 onwards. Given the company’s favourable prospects and the discount at which it is trading, we believe that CMGE is a sound investment.

</div>

CMGE is an IP based game operator and publisher based in China planning to list on HKEX on the 31st of October 2019. CMGE listed on NASDAQ in 2012, becoming the first Chinese mobile game company to list on an US stock exchange. However, in August 2015, CMGE was delisted from NASDAQ after being taken private by Pegasus Investment. In November of the same year, all the issued shares held by Pegasus Investment were acquired by CMGE Mobile Tech, a Chinese company. In 2018, CMGE acquired two other mobile game developers, Beijing Softstar and Wenmai Hudong. In its latest listing on the HKEX, at the midpoint of the offer price, CMGE would be raising HKD1,157m. At the mid-point of its IPO price range, CMGE will have a market cap of HKD5,675.1m and an EV of HKD5,697.5m.CMGE’s licensed IP involves popular names such as Naruto, Dragon Ball Z and One Piece. Accordingly, when looking at publishing IP based games, CMGE has continued to be the market leader, holding a share of 13.7% at present in terms of revenue and 9.3% in terms of the number of IP based games published. CMGE also has the largest reserve of licensed and owned IP based mobile games with 99 IPs under its belt. Its closest competitor in terms of IP reserves has only 21 IPs to their name. However, due to the dominance of heavyweight such as Tencent, in the broader industry CMGE held a 1.5% share in the Chinese mobile game market in 2018. Similarly, even in the mobile game publishing landscape, CMGE, coming in fifth place held a share of 3% in 2018 with the industry leader dominating the market with a share of 55.1% in 2018.
Details of IPO

New Shares Offered
461,000,000


Capitalisation issue
1,660,842,186


Existing Shares Offered
139,157,814


Total Shares Outstanding
2,261,000,000


Offer as a % of Total Shares Outstanding
20.4%


Offer Price (HKD)
HKD2.19-HKD2.83


Trading Date
31st October 2019


IPO Price - Midpoint (HKD)
HKD2.51


Market Capitalisation (HKDm)
5,675.1


Enterprise Value (HKDm)
5,697.5


Source: Company Prospectus, LSR
On our estimates, CMGE is trading at a FY2 EV/OP multiple of 5.8x, at a discount to the peer average of 12x. The company’s revenue grew at a 2-year CAGR of 26.3% over 2016-18. While the GPM has been on a downtrend, OPM has performed on par with the peer average. The company has maintained favourable topline and bottomline performance and has a steady pipeline of games in store over coming years. In addition, CMGE is starting to bring its IP to the big screen by developing TV shows which are slated to be releasing from 2020 onwards. Given the company’s favourable prospects and the discount at which it is trading, we believe that CMGE is a sound investment.



CMGE IPO: IP Based Mobile Game Operator Seems to Be Listing at a Significant Discount

CMGE Tech

CMGE IPO: IP Based Mobile Game Operator Seems to Be Listing at a Significant Discount