An announcement made CMGE (00302) soar by 20% in two trading days, and the long-term value of this leading global IP game operator is being tapped by the market.
This announcement revolves around the appointment of new directors, and at this point in time, it was also interpreted by the market as CMGE's determination to "protect the pass", and the market immediately gave positive feedback.
Zhitong Financial APP learned that after CMGE announced that Jiang Yukai, investment director of Pearl River Investment Management, joined its board of directors, it rose by 12.75% and 6.09% respectively for two consecutive trading days, with a cumulative increase of 20%. The company's trading volume has been significantly enlarged, and the core feature is the continuous inflow of Hong Kong Stock Connect funds, from April 16 to 23, the Hong Kong Stock Connect was net buying for 7 trading days, during which the market value of Hong Kong Stock Connect holdings increased by about HK $100 million.
CMGE (00302) is determined to "Baotong", is this an opportunity to get on the bus, or a flash in the pan? In the view of Zhitong Financial APP, it may be an opportunity to get on the bus.
In fact, Jiang Yukai's joining the board of directors of CMGE is just a "big rise" inducement, e-sports investment boss Zhu Yihang is a firm strategic investor of the company, holding shares for 3 years, optimistic about the company's fundamentals and future prospects, this appointment of capable people will settle in, participate in business decisions, the market may have long expected. Hong Kong stocks and Hong Kong Stock Connect funds are mostly rational funds, and the continuous inflow is not only the impact of announcements, but also the consideration of these "three dimensions".
So, what exactly are these "three dimensions"?
The first dimension: the dimension of capital operation
Zhitong Financial APP learned that Zhu Yihang is a strategic investor in CMGE, and in April 2021, he joined Bilibili and Shengtian Network to participate in the subscription of the shares allocated and issued by CMGE, subscribed for 56.4 million shares, and has held them so far. This time, Jiang Yukai will be appointed to join the board of directors of CMGE, and Jiang Yukai will be the investment director of Pearl River Investment Management at this point in time, and the market predicts that he will make a big move.
In fact, 2023 is the first year of AI, with generative AI gradually maturing from text to video production, and various industries, including automobiles, computers, and mobile phones, have begun to take the lead in laying out the market cake under large models, and games are one of the most potential application scenarios of AI. Jiang Yukai once said that CMGE, as a Hong Kong-listed game company with the core advantages of AI+IP+ game products, will also launch its self-developed fist product "Sword and Fairy World" this year, and firmly believes that the company's long-term growth value will be gradually recognized.
"Sword and Fairy World" will be CMGE's first virtual world in the world, and the market attention is very high. As a leading target of AI games, industrial investors are eyeing each other, Zhu Yihang, as a strategic shareholder, has a preferential advantage over external investors, and its layout in the game field has formed a relatively complete e-sports industry ecology for many years. It is worth mentioning that Zhu Yihang has a well-known game e-sports team, EDG E-sports Club, and its MCN game talent resources are numerous, and it is not excluded that there will be more cooperation with CMGE in "Sword and Fairy World".
Jiang Yukai is Zhu Yihang's right-hand man, and there is a high probability that he will participate in the resource integration of Zhu Yihang and CMGE, integrate e-sports resources and IP game resources, and achieve the effect of 1+1 greater than 2. The investment in AI games will be the highlight, with the total assets of Zhujiang Investment Management exceeding 64 billion yuan and strong capital strength, it is not excluded that Zhu Yihang may continue to increase his holdings in CMGE, and use CMGE as a listing platform to grab the game feast in the AI era through investment, acquisition and restructuring.
The expectation of capital operation is not only in the acquisition, restructuring and integration of assets and businesses, but also in the secondary market, CMGE has begun to pay attention to market value and shareholder returns. On March 28, CMGE announced that the board of directors decided to use the share repurchase authorization to use up to HK$100 million to repurchase shares in the open market, and had started and continuously repurchased shares, and announced again on April 23 that it would purchase no more than 10% of the total number of issued shares of the company on the date of approval of the share repurchase authorization, that is, a maximum of 275267200 shares, at the current price of about HK$325 million.
On April 25, according to the equity disclosure of Disclosure, Xiao Jian, chairman and CEO of CMGE, also increased his holdings by 750,000 shares on April 24, with an average price of HK$1.211 per share, with a total amount of HK$908,250, and the latest number of shares held after the increase was about 782 million shares, and the shareholding ratio increased to 28.39%.
The above-mentioned capital operation proves that the management and shareholders are optimistic about the company's development, guides the market value discovery, and is recognized by market funds, especially Hong Kong Stock Connect funds.
The second dimension: the adjustment dimension of Hong Kong Stock Connect
One of the biggest possibilities is that the target of Hong Kong Stock Connect is about to usher in regular adjustments, and CMGE will also face the end of the 12-month review and whether to retain the status of Hong Kong Stock Connect, which will bring about a revaluation of market value. The adjustment of Hong Kong Stock Connect includes regular adjustment and temporary adjustment, and the regular adjustment is once every six months.
The coverage of the Hong Kong Stock Connect is the Hang Seng Index Composite Index, and the semi-annual index review starts and ends at the end of June and December respectively, which correspond to one year, and the performance of the Hong Kong Stock Connect internal and external targets in and out of the average month-end 12 months. Trading volume and month-end market capitalisation are the core indicators of Southbound adjustment, which must meet the minimum requirement of 0.1% in terms of trading volume in at least 10 of the past 12 months, be in the top 95% of all Main Boards in terms of market capitalisation, and have a month-end market capitalisation of HK$4 billion or more in the 12 months as at the date of review.
CMGE is already a Hong Kong Stock Connect target, and as long as the core conditions are met, it will not be called out. Since July 2023, the company's daily turnover rate has been in the range of 0.1-1%, which meets the conditions in terms of trading volume, and the company's average month-end market capitalization during the period is HK$3.6 billion, which is slightly lower than the conditions of Hong Kong Stock Connect, but according to the relevant software, the company's market capitalization ranks in the top 91% of the Hang Seng Composite Index, which meets the conditions of Hong Kong Stock Connect.
CMGE is likely to remain in the Hong Kong Stock Connect target, mainly as follows: first, the market value conditions are relatively close, and it is relatively easy to achieve; second, the company is a high-quality target in the mobile game sector, and it is also a scarce target in the field of AI games, and the mainland's big funds are unwilling to miss it, and there is a strong willingness to pull it up; third, under the long-term liquidity shortage of Hong Kong stocks, affected by policies, the market and the sector, the valuation has fallen sharply, and the low valuation will also receive capital attention during the adjustment period of the Hong Kong Stock Connect.
In fact, Hong Kong stocks are relatively scarce, but the mainland has abundant funds, and the Hong Kong Stock Connect is the core channel for domestic investment, statistically speaking, domestic capital contributes more than one-third of the trading volume of the Hong Kong stock market. In the low-valued Hong Kong stock market, large mainland funds hope to obtain investment opportunities in high-quality targets, and CMGE, as a growth mobile game target, is naturally favored by domestic investors, and continues to invest and share the company's development results through the Hong Kong Stock Connect channel.
The third dimension: the fundamental dimension
In fact, whether it is capital operation or Hong Kong Stock Connect adjustment, all driving dimensions are inseparable from the strong fundamentals of CMGE. With IP as the core, CMGE provides high-quality IP games for global players through independent R&D and joint R&D, with resilient performance in previous years, steady growth before 2021, and after the impact of the epidemic and version number policy is eliminated in 2022, its own IP games have returned to the double-digit growth track after the impact is eliminated in 2023.
Relying on its own superior IP resources, the company continues to make efforts in the three major business segments of IP game research and development and global distribution, its own IP operation and the national style metaverse platform, and its Chinese style metaverse platform will create an AI-leading work, namely "Sword and Fairy World". "Sword and Fairy World" is the first open world game with the theme of Chinese style Xianxia in China, which obtained the version number in June 2023, and has already begun to launch pre-order activities, with the number of pre-orders exceeding 4 million, and two tests have been conducted in 2023, and the billing test to verify the monetization ability of the product before the launch is also about to begin, and is scheduled to be officially launched in 2024.
In 2024, CMGE has high performance expectations, on the one hand, it is rich in game reserves, and it is planned to launch a number of blockbuster IP games in domestic and overseas markets in 2024, such as "Breaking the Sky: Peak Showdown", "Douluo Continent: Reversal of Time and Space", "Naruto: Konoha Master", "The Legend of Cao Cao of the New Three Kingdoms", on the other hand, the blockbuster national style Xianxia virtual world game "Sword and Fairy World" will be successfully launched. In addition, in the mini game sector, the company also reserves nearly 10 games, which is expected to be more than the 600 million revenue brought by the three mini games last year. At the same time, major investment banks expressed optimism about the company, among which CMB International expects its revenue to increase by 32% year-on-year in 2024, with a target price of 2.9 yuan.
In July 2021, the National Press and Publication Administration announced the approval information of the last issue of domestic online games of the month, followed by a more than 260-day suspension period of edition numbers, and only reopened in April 2022. Affected by the version number policy, the valuation of the mobile game sector has declined for three consecutive years from 2021 to 2023, and the valuation of individual stocks has fallen seriously, and the valuation of some targets has reached a historical peak.
Referring to the policy-sensitive industry, the policy grind generally takes 1-3 years, after the valuation reversal, the more radical such as the education and training industry, in 2021, the double reduction policy was introduced, most of the stocks plummeted by 90% that year, directly to the bottom of the policy, after a year of adjustment, the market value of New Oriental increased by 2.9 times for three consecutive years. The mobile game sector is facing the opportunity of policy bottom nodes and cycle rotation, and CMGE, as a leader in the sector, is bound to be sought after by market funds.
It is worth noting that in the mobile game sector of Hong Kong stocks, CMGE is one of the few targets in its peers that has announced a large repurchase and one of the few targets that will launch AI games. At the same time, the company has also been favored by market funds, investment banks, company management and strategic investors, with the joint efforts of long-term value funds and short-term hot funds, the company's valuation is expected to continue to be bullish in the short and medium term, and the market value is still high.