5G concept "exaggerated" Fuchun shares set to increase the code game Bo turned over

Financial Associated Press (Xiamen, reporter Li Zijian) news, a high proportion of outsourced research and development, internal rate of return is far from the same, game development projects hidden "buy money", Fuchun shares (300399. SZ) latest disclosure of the fixed increase plan has confused the market. The two game companies that the company acquired at a high premium not only failed to borrow its "counterattack", but was dragged down by it. With the decline of operation and financial deterioration, controlling shareholders, executives and financial investors continued to reduce their holdings, and the company's stock price also fell from a high of 30 yuan in 2015 to less than 5 yuan at present.

From the perspective of the external game environment, the game regulatory policy is constantly tightening, and the game industry has "changed the sky". In the case that the previous merger and acquisition project was not done well, the fuchun shares set to increase the code game, and the fate was unpredictable.

With the further increase in the proportion of game projects, the "exaggerated" communication technology business may become a "chicken rib".

There are many questions about the increase in the case

From the recently disclosed version of the fixed increase declaration, it can be seen that Fuchun shares are hoping that the game sector can make the company's performance "turn over", and the reporter of the Financial Associated Press found that the estimation of the internal rate of return of the project was huge before and after the comparison of the fixed increase plan and the fixed increase declaration version, and the project that was originally intended to be "jointly developed" eventually became "outsourced research and development", in addition, the game development project "hidden" to buy "house" money.

In the preliminary increase plan, the company plans to increase by no more than 476 million yuan, of which the total investment in game development projects is 665 million yuan and the total investment in game IP operation projects is 126 million yuan. However, the latest disclosure of the announcement of the fixed increase declaration version shows that the total investment in the game IP operation project was finally adjusted to 330 million yuan.

From 126 million yuan to 330 million yuan, the total investment amount of game IP operation projects has almost tripled, but compared from the project description, the number of IP projects has hardly changed. The reason may be that the "mobile IP game adaptation and development through joint operation" in the plan has been changed to "adapting and developing mobile IP games through outsourced research and development" in the declaration version. At the same time, in the fixed increase plan, the company predicted that the internal rate of return of the game IP operation project would be 21.84%, and in the fixed increase declaration version, the internal rate of return of the project was adjusted to 29.10%.

The "Great Leap Forward" of internal rate of return is not only the game IP operation project, but also the game development project is more "radical". Although the total investment amount of the game development project in the pre-increase plan and the declaration version did not change much, the internal rate of return of the project jumped from 24.19% to 43.98%.

On the other hand, the game development project implies the money of "buying a building", and the fixed increase declaration version shows that the total investment in the game development project is 664 million yuan, of which the site purchase cost is 151 million yuan. Although Fuchun shares said that it is because of the growth of employees and the construction of office land, there is no disguised investment in real estate. However, Fuchun shares have previously had a precedent of "denaturing" real estate. In February 2015, Fuchun announced that the company will use the remaining 51.67 million yuan raised by the IPO to increase the capital of Xiamen Fuchun, and all the capital increase will be used for the construction of the company's Xiamen research center project. The Xiamen Research Center project is located in the third phase of Xiamen Software Park, "the main construction content is to build office space, purchase information and R & D equipment, recruit high-end management and R & D talents, and build the company's nationwide operation center and business incubation center".

In 2020, the Xiamen Research Center project under construction was completed, and Fuchun shares transferred 180 million yuan to investment real estate at the book value of the construction project, and the Shenzhen Stock Exchange inquired about the "reasons and rationality of recognizing the project under construction as investment real estate". Therefore, it is worth paying attention to whether the company will "repeat the same tricks" on the site of the game development project.

Why is there a shift in the fixed increase project from "joint operation" to "outsourced research and development"? If the main funds of the project are used for outsourced research and development, what is the company's main position in this project? What is the basis for the yield adjustment? Why is outsourced R&D more profitable than joint development? For the above questions, on October 22, the reporter of the Financial Associated Press contacted the relevant person in charge of the company, but as of press time, it has not received a response.

Lack of corporate governance capabilities and operational capabilities

Judging from the past information disclosure and operation of Fuchun shares, there are also many problems in corporate governance capabilities. The 2020 performance forecast "Oolong" has caused an uproar in the market.

At the beginning of this year, Fuchun shares disclosed that the company was expected to make a profit of 31 million yuan to 45 million yuan in 2020, but it was revised to a loss of 9.989 million yuan shortly after, and the explanation given was "the calculation error of financial personnel".

Although the financial data related to the above-mentioned performance forecast has not been audited by a certified public accountant, the article states that "the company has pre-communicated with the annual report audit accounting firm on matters related to the performance forecast, and there is no disagreement between the company and the accounting firm on the performance forecast for the reporting period." ”

This is not the first time a similar "mistake" has occurred. In February this year, Fuchun Co., Ltd. was issued a warning letter by the Fujian Securities Regulatory Bureau due to inaccurate information disclosure in the 2018 and 2019 annual reports. It can be seen from the warning letter that at that time, Fuchun shares had problems such as "failure to recognize investment income in a timely manner", "insufficient basis for provision for bad debts for performance compensation", "insufficient basis for provision for bad debts for other receivables" and "insufficient basis for impairment of long-term equity investment in Shanghai Yuyang".

Specific to business operations, the two high-premium acquisitions in the game sector did not reach the expected target. Among them, the wholly-owned subsidiary Mochikaka was transferred to the company's controlling shareholder, Fuchun Investment, at a low price, and Junmeng Games was accrued with goodwill all the way.

In 2016, Fuchun Co., Ltd. purchased 100% of the shares of Mochika by issuing shares to the counterparty of the Mochika transaction and paying cash for a transaction consideration of 880 million yuan. At that time, Fuchun Co., Ltd. implemented the dual main business strategy of "communication information + game", intending to realize the synergy between the development of high-quality products in the game industry and the diversification of product type models.

According to the performance commitment, from 2016 to 2019, Mochica needed to complete a total of 356 million yuan of non-net profit, but as of 2019, only 143 million yuan was completed, a difference of 212 million yuan from the commitment at that time. Among them, the loss in 2019 was 23.04 million yuan, and the loss from January to October 2020 was 7.35 million yuan. In the end, the Mochika card acquired for 880 million yuan was sold to the controlling shareholder Fuchun Investment for 42.5 million yuan.

Mochikaka "lost", and the current junmeng game is not good. The original value of Junmeng Games' goodwill was RMB777 million, but due to the failure to meet performance commitments and the fact that revenue was less than expected, RMB356 million and RMB230 million were recorded in 2017 and RMB230 million in 2019, respectively. At the end of 2020, the carrying amount of goodwill was only $191 million.

According to financial data, Junmeng Games achieved revenue of 247 million yuan, 207 million yuan, 154 million yuan and 210 million yuan in 2017-2020, respectively, corresponding to net profit attributable to the mother of 53.06 million yuan, 54.45 million yuan, 29.95 million yuan and 80.29 million yuan. Overall, revenue showed a "box shock", and the net profit attributable to the mother "rebounded" in 2020 after falling all the way, but it was still lower than the high point of 115 million yuan of net profit in 2016.

According to Fuchun's net profit forecast for Junmeng Games, from 2021 to 2025, it will be 107 million yuan, 113 million yuan, 119 million yuan, 123 million yuan and 129 million yuan, respectively. The expected growth rate is not "amazing".

Under the circumstance that Fuchun shares acquired two game companies, both suffered from large amounts of goodwill accruals, unstable revenue and net profit, and lack of high growth in future growth expectations, whether the game projects with fixed increases can save the company's performance still needs to be tested by the market.

78 of the 86 trading records were for reductions

At present, the company has not yet determined the specific issuance object, whether the fixed increase project is optimistic about the market is difficult to predict, and it is impossible to judge whether Fuchun Investment, the controlling shareholder of Fuchun Shares, has subscribed. However, from the past records of major shareholders' buying and selling, 78 of the 86 records are records of reductions, of which 2019 was the most intensive.

Wind data shows that since 2013, Fuchun executives, controlling shareholders and financial investors have continuously reduced their holdings. Among them, the controlling shareholder, Fuchun Investment, has dropped from 32.29% of the total shares at the beginning of the listing in 2012 to 14.88% disclosed in the semi-annual report of 2021; the actual controller, Miao Pinzhang, has dropped from 15.2% to 7.64%. Several investment firms have disappeared from the top ten shareholders.

The frequent reduction of holdings is obviously related to the performance of Fuchun shares, and the annual report shows that from 2017 to 2020, the company's net profit after deducting non-deductions was -327 million yuan, -299 million yuan, -912 million yuan and -0.10 billion yuan, which has been negative for 4 consecutive years. The company's share price also fell from its once highest price of $30.33 per share to $4.76 at the close on Oct. 22.

In addition, the game industry has "changed the sky". The online game industry has entered the stage of strong supervision as early as 2018, and "preventing minors from indulging in online games" and "game content review" have always been the focus of supervision and continue to upgrade.

From the promulgation of the "Detailed Rules for The Scoring of Game Review" in March 2021, the "Notice on Further Strict Management and Effectively Preventing Minors from Addicting to Online Games" in August, the "Notice on Carrying Out Comprehensive Management of the Cultural and Entertainment Sector" in September, and the "Outline for the Development of Chinese Children (2021-2030)", all indicate that the game supervision policy is constantly tightening.

Zhongtai International related research report pointed out that this year is the year of Internet supervision, the most stringent anti-addiction measures in the history of the game industry have landed in August, but the failure to announce the approval of the version number for two consecutive months has deepened market anxiety. "We believe that there is still room for upgrading industry supervision, policy risks are still the focus of the near future, and some game companies are inevitably facing pain."

Taking the game IP project "Legend of Wonderland" that has been clearly defined in the Fuchun shares fixed increase case, the IP is currently operating products in China, such as "Legend of Wonderland RO: Guarding Eternal Love". It is reported that the game's current age rating is "12+", which coincides with the age group of supervision.

The dot data shows that the game ranked 675th in the iPhone device game (free) list on July 8 this year, and then despite the many iterations of the version, it still showed a downward trend, and after falling to 1287 on September 2, the list has no statistics "Wonderland RO: Guardian eternal love" data. The "strictest anti-addiction" was implemented on September 1.

Ma Axin, an analyst in the analysys interactive entertainment industry, told the Financial Associated Press that in the long run, the game industry will continue to shuffle, and enterprises that can grasp the needs of players and produce high-quality and innovative game products will be recognized by the industry and users. In addition to the strategy of products that require a higher degree of quality and the level of purchase and promotion, he said, "Product reserves are equally important, such as whether the company has independent research and development capabilities, or whether it has high-quality and sufficient product reserves." ”

5G concept "exaggerated"

Fuchun co., Ltd. claims to be a high-tech enterprise dedicated to communication informatization and digital culture services, and is "one of the leaders in the domestic private communication network construction technology service providers", and the company revolves around the dual main business of "communication information + mobile games". On the official website, the company calls itself an "important supporting unit in the field of domestic communication construction", and also adds the label of "big data business". At present, the mainstream communication technology is commonly referred to as 5G, Fuchun shares are therefore on the "5G concept", but from the development of Fuchun shares to analyze, the above description of communication technology or "exaggerated", the Financial Associated Press reporter found that for many years the performance of communication technology remained low, in addition, research and development investment is also difficult to see the "main business" status.

Wind data shows that before 2015, information technology was almost the entire source of the company's revenue, but after the company introduced the game business in 2015, the information technology sector revenue was greatly compressed and the growth rate was slow. From 2015 to 2020, Fuchun information technology accounted for 61%, 39%, 27%, 32%, 34% and 43% of the company's total revenue, respectively, accounting for 40% of the company's revenue.

From the perspective of revenue proportion, the information technology sector seems to have performed well, but in terms of revenue growth, in the past 6 years, the sector has fluctuated below 200 million yuan for 4 years. Among the 51 companies counted by Wind communication technology components, the compound revenue growth rate of the above companies in the past 6 years is 26%.

Specific to the gross profit contribution, this "old business" is pitifully small. Wind data shows that from 2015 to 2020, the gross profit of information technology accounted for 37%, 20%, 10%, 11%, 10% and 20% of the company's main business gross profit, respectively, and the gross profit contribution was still at a low level in the case of the game business performance was not outstanding. Therefore, whether it is from the revenue growth rate of the information technology sector or the gross profit contribution of the sector, it is difficult for information technology to make Fuchun shares one of the "front-runners".

The R&D expense information disclosed in the pre-increase plan reflects that the information technology sector may become a "chicken rib". Wind data shows that the research and development expenses of Fuchun from 2018 to 2020 are 0.66 billion yuan, 0.78 billion yuan and 0.71 billion yuan, respectively. The company's fixed increase plan discloses that from 2018 to 2020, the R&D expenses of the company's wholly-owned subsidiary Junmeng Games were 0.40 billion yuan, 0.53 billion yuan and 0.51 billion yuan, respectively.

That is to say, from 2018 to 2020, the R&D investment in information technology accounted for 40%, 32% and 28% of the company's total R&D expenditure. But in fact, since Mochikaka, a wholly-owned subsidiary at that time, had not yet been sold, the investment in research and development of its information technology was lower than the above value.

If the total R&D expenses of Fuchun shares are deducted from the R&D expenses of junmeng games, the R&D investment of the company's information technology sector in 2020 is up to 0.20 billion yuan, which is not ranked at all in the ranking of R&D expenses of 51 companies in the statistics of Wind communication technology components, and it is difficult to be called "an important supporting unit in the field of domestic communication construction".

Communication technology business is difficult to shake the "5G concept" banner, the fixed increase case is full of doubts, the lack of corporate governance and operation capabilities, the controlling shareholders continue to reduce their holdings and have not expressed their intention to participate in the fixed increase, the game industry continues to shuffle, whether the Fuchun shares fixed increase code game can make the company turn over, still needs to be verified by the market.