On 13 January, Shanghai Ark Biopharmaceutical Co., Ltd. (hereinafter referred to as "Yunyong Games") submitted a prospectus to the Hong Kong Stock Exchange for listing on the Hong Kong Stock Exchange. The sole sponsor is Fude Financial.
On June 29, 2021, Yunyong Games submitted its first prospectus, which has now been shown as "invalid".
According to the prospectus, Saka Limited holds an 86% stake in Yunyong Games. The company's founder and CEO Zeng Lixing and his mother Xu Mengxia hold 70% and 30% of the shares of Saka Limited, respectively, and the two are acting in concert.
Justdan Holding, which holds 14% of the shares of Yunyong Games, is regarded as a concerted actor, and Zhuang Jingshu, Zhuang Yawen, Zhuang Fulai and Katsuga Se Shigeo hold 43%, 43%, 4% and 10% of justdan Holding respectively.
Focus on card and game console sales, in the market leading position
Yunyong Games focuses on the distribution of trading card games, consoles and console games, and is one of the largest companies in the game and collectibles market in the Asia-Pacific region.
The company's business includes: wholesale business, retail business, issuance business. The main one is the wholesale business. Through its sub-distributors, resellers and retailers under wholesale channels, the Company sells games and collectibles to over 15,000 points of sale primarily in Hong Kong, Chinese mainland, Malaysia, the Philippines, Singapore and Taiwan. Retail is mainly carried out through its own e-commerce website, third-party e-commerce platforms and retail stores in Hong Kong.
In terms of revenue in 2020, Yunyong Games ranked first in the distribution of trading card games in the Asia-Pacific region and first in the distribution of console and console games in Taiwan, with a market share of about 1.0% in the Game and Collectibles market in the Asia-Pacific region.
The scale of the market continues to expand, and the second-hand trading market cannot be ignored
The company's industries are mainly the game and collectibles market and the exchange card collection market.
According to the prospectus, the gaming and collectibles market in the Asia-Pacific region grew at a CAGR of 24.9% from 2015 to 2020. As the demand for diversified entertainment activities expands, the total market size is expected to maintain an upward trend in the future and eventually reach HK$424.2 billion by 2025, with a compound annual growth rate of 23.2%.
In terms of the exchange card game market, the wholesale value of the Asia-Pacific market grew at a CAGR of 28.1% from 2015 to 2020. As Pokémon Chinese Traditional, King of Games Chinese Simplified further drive growth in Asia and China, and the acceptance of trading card games in the Asia-Pacific region increases, its wholesale value is expected to reach HK$47.799 million in 2025, representing a CAGR of 22.1%.
Due to the collectible value and limited production behind the licensed IP, the exchange card game also has a considerable second-hand market, and its product life cycle is much longer than that of video games. Classic IP cards such as Pokémon, King of Games, and Magic Storm Society held by Yunyong Games have a life cycle of more than two decades, making them more sustainable with a large fan base.
Many players buy rare and used cards through online B2C platforms (e.g. Yunyong Games) and C2C platforms (e.g. Amazon and eBay). It is also common for some very rare cards to be traded through auction. For example, the Pokémon's original Basic Deck Booster box sold for $78,000 through Harry Potter Auction House in 2019, meaning it has grown at a CAGR of 37.8% over the past 20 years.
From 2015 to 2020, the total value of transactions in the global trading card game secondary market increased from HK$12.6 billion to HK$27 billion, a CAGR of 16.5%, and is expected to increase to HK$83.2 billion in 2025, representing a CAGR of 25.2%.
Given the high potential return on investment of exchanged cards, it is increasingly attractive to many investors as an alternative investment option. The influx of sophisticated investors into the exchange card market is expected to further drive the growth of the global exchange card game used market.
With market-dominant brands such as Magic Storm, Pokémon, King of Games, Nintendo Switch and Sony PlayStation, it is expected that Yunyong Games can occupy more market share in the Asia-Pacific region in the future.
However, the reliance on the dominant brand also means that if the company is unable to maintain a business relationship with the brand owner who has been granted distribution rights, the company's business, financial condition and operations may be materially and adversely affected.
Revenue grew significantly and was highly dependent on the wholesale business
According to the prospectus, in the first nine months of 2018, 2019, 2020 and 2021, yunyong games' operating income was HK$123 million, HK$227 million, HK$1.012 billion and HK$1.215 billion, respectively, and the corresponding net profit was HK$14.145 million, HK$37.882 million, HK$98.775 million and HK$137.66 million, respectively.
The company's revenue continued to grow and achieved a major breakthrough in fiscal 2020. The prospectus discloses that this is primarily due to the Company's acquisition of a new distribution license for trading card games in fiscal 2019, an increase in product supply through the portfolio of game consoles and video games acquired through the Jessden acquisition, and the organic growth of existing trading card game brands.
In terms of business division, among the three major businesses, the company's revenue mainly relies on wholesale business. In the first nine months of 2020 and 2021, the wholesale business achieved revenue of HK$955 million and HK$1.159 billion respectively, accounting for 94.3% and 95.4% of the total.
According to the prospectus, Yunyong Games' wholesale business mainly includes downstream B2B wholesale, including exchange card games and related accessories, game consoles and related accessories, video games and other games and collectibles, all obtained from brand owners and authorized distributors and agents and sold to wholesale customers (including sub-distributors, resellers and retailers).
The high dependence on the wholesale business has also led to a relatively single revenue model of Yunyong Games. According to the prospectus, companies generally do not enter into any long-term agreements with wholesale customers, but instead place purchase orders according to their respective business needs. A single revenue model and a non-long-term stable cooperation model may lay risks for the company's operation, and if the wholesale business changes in the future, it may affect the company's revenue to a large extent.
The cost of sales has increased year by year, and the gross profit margin has decreased overall
At the same time as the rapid growth of revenue, the sales cost of Yunyong Technology has also increased year by year. During the Reporting Period, the Company's cost of sales increased from HK$0.94 billion in FY2018 to HK$865 million in FY2020, reaching HK$992 million in the first nine months of 2021 alone.
According to the prospectus, the increase in the cost of goods sold was mainly due to the increase in purchases due to the acquisition of a distribution license for Pokémon cards (Chinese Traditional version) and a significant increase in wholesale business due to the acquisition of Jessden.
The company's gross profit as a whole has increased year by year, but the gross profit margin has decreased overall. From 2018 to the first six months of 2021, yunyong Holdings' gross profit was HK$0.29 billion, HK$0.62 billion, HK$147 million and HK$222 million, respectively, corresponding to gross profit margins of 23.8%, 27.4%, 14.6% and 18.3% respectively.
According to the prospectus, the increase was partly due to the increase in revenue from the Acquisition of Jessden and the improvement in the profit margin of trading card games and related accessories through Jessden's sales of its product portfolio to Retailers in Taiwan.
The decrease in gross margin was primarily due to a significant increase in the contribution of game consoles and related accessories and video games due to the Acquisition by Jessden, while the related gross margin was lower than that of the remaining product categories.