Acquisition of "Chinese Paladin" IP global rights, CMGE accelerates the promotion of its "cultural IP" going global strategy

According to the Zhitong Finance APP, on September 11th, CMGE (00302) announced that its wholly-owned subsidiary SuperNova will acquire and Dayu will transfer the target IP rights. Following the complete acquisition of Beijing Softstar and the ownership rights of the "Chinese Paladin" IP in mainland China in August 2021, CMGE once again conducted an asset acquisition of the global rights of the "Chinese Paladin" IP. After the transaction is completed, the company will own all intellectual property rights of the IP globally.

CMGE will pay for this acquisition in two ways: first, by paying Dayu HKD 20.13 million in cash; second, by issuing and distributing 38 million consideration shares to Dayu at HKD 1.68 per share. These two payment methods not only reduce the company's cash outflow but also, through equity substitution, obtain international strategic shareholders, deeply bind for collaborative development, and bring imaginative space for resource integration and globalization advancement.

Furthermore, the consideration shares in this transaction are at a high premium. Compared to the average closing price of HKD 0.701 per share reported on the Stock Exchange of the announcement date, the premium is approximately 139.66%. This indicates Dayu's positive outlook on CMGE's future. After the issuance is completed, Dayu will hold 1.31% of CMGE's shares. It is disclosed that Dayu is a listed company in Taiwan, a leading game developer and IP-based entertainment provider, mainly engaged in computer games, client online games, web online games, mobile game development, IP licensing, and game publishing.

The last strategic investor who acquired CMGE at HKD 1.68 per share was the esports tycoon Zhu Yihang. After multiple increases in holdings, Zhu Yihang's stake reached 9.68%, making him the third-largest shareholder after Fairview Ridge Investment Limited and Pegasus Networks. In the relatively illiquid Hong Kong stock market, CMGE's market value is considered distorted by industry investors. Therefore, both Zhu Yihang and Dayu can accept high premium subscriptions and substitutions.

Dayu's business is highly similar to CMGE, with great expectations for integration. Taking Zhu Yihang as an example, according to CMGE's financial report for the first half of the year, Zhu Yihang's esports industry chain has gradually integrated resources with CMGE. In the first half of 2024, the two parties jointly expanded the innovative online + offline cross-border traffic model, bringing more low-cost player increments to the company's IP games and increasing the player base. In addition, "Chinese Paladin World" is collaborating with Hesheng Business under Hesheng Mall to plan a series of activities to cultivate and build offline traffic bases for "Chinese Paladin World."

However, why does CMGE attach such importance to the "Chinese Paladin" IP?

In fact, since CMGE became the controlling shareholder of Beijing Softstar in 2018, it has been deeply laying out the entire industry chain of the "Chinese Paladin" IP. After six years of polishing, the vitality and influence of the "Chinese Paladin" IP have continued to rise, winning numerous champion awards from official and social organizations in mainland China, demonstrating both influence and commercial value.

For many years, the company has been planning to enhance the IP value of "Chinese Paladin" and cultivate the vitality and influence of the IP, aiming to develop in mainland China and expand its business globally. The "Chinese Paladin" matrix covers a wide range, including games, comics, literature, content experiences, entertainment scenes, film and television, animation, music, virtual idols, and derivative products, forming a strong IP ecosystem to meet the needs of IP fans in different fields As of now, Xianjian has a user base of over 600 million, including over 100 million core fans, 500 million familiar with Xianjian, and over 1 billion internet users highly interested in the Xianjian IP, making it of great commercial value. Within the Xianjian IP matrix, "Xianjian World" is the most market-focused. This game is the world's first Chinese-style martial arts open-world cross-platform AI game, which has been polished for over three years. It obtained licenses for both PC and mobile platforms in June 2023, underwent the third round of testing in May this year, is about to enter the fourth and final testing phase, and is scheduled to officially launch by 2024.

So why did CMGE acquire the global rights to the "Xianjian Qi Xia Zhuan" IP at this time? In fact, "Black Myth: Wukong" has become popular worldwide, sparking a wave of interest in learning about Chinese culture. At the national level, there is also a growing emphasis on the development of cultural heritage IPs, aiming to spread Chinese culture globally through high-quality IPs with cultural value. In this context, CMGE is closely following policy trends, firmly holding onto high-quality IPs, not only inheriting culture but also expanding into the global market.

According to disclosures, the company believes that the comprehensive acquisition of the global intellectual property rights and interests of "Xianjian Qi Xia Zhuan" will strengthen the group's IP game ecosystem competitiveness and ensure the long-term stable implementation of the group's IP game strategy.

At the same time, the company also stated that it closely follows relevant national guidelines and policies, focusing on traditional cultural heritage, deeply exploring the outstanding cultural value of the IP, and conveying inspiring positive values to the public. It aims to build "Xianjian Qi Xia Zhuan" into a top global Chinese game brand, elevate the influence of the IP game to new heights, and let Chinese stories and culture resonate more deeply with people around the world.

It is worth noting that CMGE has multiple IP ecosystems, including the Xianjian IP ecosystem and the "Douluo Continent" IP ecosystem. Hit products include "Douluo Continent: Shrek Academy" and "Battle Through the Heavens: Peak Showdown", with the former generating over 100 million yuan in revenue in its first month. Additionally, there is also a casual game ecosystem, such as "Smash a Hammer", which ranked first in the tower defense and elimination category of casual games after its launch. The company stated that it will increase investment in all aspects to create more high-quality content and interactive experiences by combining entertainment forms favored by young users.

In summary, CMGE's acquisition of the global rights to the Xianjian IP is expected to bring about the development of culturally valuable games in the future, especially in terms of going global, promoting cultural IP products internationally, which is of significant importance in spreading Chinese culture. This move forms a synergistic resonance between policy and market. With a solid foundation, advantages in R&D and IP, and recognition from industry investors, the company has a high potential for undervalued market capitalization