18 September 2018

Corporate China’s transformation shortcut: mobile gaming

Chinese authorities have been pushing people and enterprises to help transform and upgrade the nation’s economic structure in order to counter the slowdown and achieve sustainable growth.

Heeding the call from leaders, some companies hit by overcapacity and falling profit have indeed embarked on business transformation, but with an “innovative” twist. One popular trend is getting into mobile gaming business — a red-hot sector that has seen sharp gains on the stock market, huge investor response during share sales and even an investment from the national pension fund.

Wuhu Shunrong Auto Parts (002555.CN), Xinghui Auto Model (300043.CN), Susino Umbrella (002174.CN), Beijing Ultrapower Software (300002.CN), Shanghai Challenge Textile (002486.CN) and property developer Zhonhong Holding (000979.CN) are some of the new names that popped up in the mobile gaming world recently, as the China Securities Journal noted. The companies have already entered the business, or are planning to do so, through acquisitions, in some cases paying sky-high prices for companies that rely on just one or two hit products.

Mobile gaming business is known for its long development cycle. Success rate of new games has been low — 10 percent, according to the Journal report, even for some experienced game companies. On top of that, popularity of games doesn’t last long. It is a big question then, whether newcomers can handle such business volatility.

The mobile game concept has brought sharp market valuation surge for some firms, providing further incentive for others to follow. Shunrong Auto has seen its stock price almost triple in a few months, while Xinghui Auto has doubled. That said, it is worth bearing in mind that the investor euphoria may disappear soon when the reality sets in.

– Contact the writer at [email protected]



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