Yuanli Digital rushes to the Beijing Stock Exchange, can the gaming industry’s listing welcome a breakthrough signal?

The Beijing Stock Exchange is welcoming game-related companies.

Recently, the listing application of Jiangsu Yuanli Digital Technology Co., Ltd. (hereinafter referred to as "Yuanli Digital") has been accepted by the Beijing Stock Exchange.

Yuanli Digital mainly engages in 3D digital content production, with games being the primary application area.

From 2021 to 2023, Yuanli Digital's revenue was 412 million yuan, 503 million yuan, and 527 million yuan, respectively, while the net profit attributable to the parent company was 71 million yuan, 69 million yuan, and 86 million yuan during the same period.

During the reporting period, the entrusted business of 3D digital content applied in the gaming field supported nearly half of Yuanli Digital's revenue.

However, investment banking professionals previously indicated that there may be restrictions on game companies listing on the Beijing Stock Exchange in communications with regulators.

This may have buried uncertainties for Yuanli Digital's current listing.

Over 50% of Revenue Comes from Games

Yuanli Digital mainly provides 3D digital content production services to major game companies.

From 2021 to 2023, revenue from the gaming sector was 255 million yuan, 269 million yuan, and 275 million yuan, accounting for over 50% each year.

Currently, Yuanli Digital's main clients for 3D content entrusted production in the gaming sector include Tencent, Microsoft Game Studios, and Electronic Arts.

From 2021 to 2023, Tencent Group brought Yuanli Digital revenues of 73 million yuan, 67 million yuan, and 76 million yuan, making it the largest client.

Games such as Honor of Kings and Delta Force under Tencent have Yuanli Digital's involvement.

In addition, Yuanli Digital also provides 3D content services for foreign games like God of War and Baldur's Gate 3. The overseas market contributed about 50% of the revenue in 2023.

Among A-share peer companies, Yuanli Digital indeed has a rarity.

Currently, A-share 3D digital content service companies have not focused on the gaming industry.

As a comparable company to Yuanli Digital, Silk Road Vision (300556.SZ) focuses on digital exhibition halls, while Fantawild (301313.SZ) concentrates its 3D service field on architectural design, advertising, and other areas, with its client base primarily consisting of government departments.

Compared to industries like exhibition halls, games have higher requirements for the visual effects of 3D content, which poses more challenges to the company's technical level.

This may also be an important reason why Yuanli Digital's profit margin is significantly higher than its peers.

In 2023, Yuanli Digital's net profit margin reached 15.91%, exceeding that of Silk Road Vision and Fantawild by 14.38 percentage points and 14.36 percentage points, respectively.

Since last year, the increase in the number of game licenses issued is expected to bring growth potential to Yuanli Digital's performance.

In 2024, the National Press and Publication Administration issued a total of 1,416 game licenses, basically returning to the level of 2020, with a year-on-year increase of over 30% compared to 2023. Among them, there were 1,306 domestic game licenses and 110 imported game licenses in 2024.

This means that the National Press and Publication Administration issued an average of over a hundred game licenses each month, which is a significant improvement compared to the average of only about 42 game licenses issued per month during the low period in 2022 Many market participants believe that the emergence of heavyweight works like "Black Myth: Wukong" in 2024 will enhance the global influence of Chinese games. The issuance of game licenses in 2025 may maintain the same pace as in 2024, and the gaming market may welcome a recovery.

"The policy support for the high-quality and global development of the gaming industry remains unchanged, and the bottom recovery trend of the industry's fundamentals is still quite clear. The issuance of new games by A-share gaming companies is accelerating, and the performance growth of the gaming sector is expected to enter a recovery channel starting from the fourth quarter of 2024," pointed out Tianfeng Securities.

In the first three quarters of 2024, Yuanli Digital's revenue and net profit attributable to the parent company were 354 million yuan and 63 million yuan, respectively, representing year-on-year growth of 4.59% and 15.24%.

What is the impact of gaming-related businesses?

Even so, Yuanli Digital's IPO still faces potential challenges.

The most core obstacle may stem from the characteristics of the industry.

There has always been a difficulty for gaming companies to go public.

In 2018, after Guangzhou Duoyi Network Co., Ltd. voluntarily withdrew its IPO application for the Growth Enterprise Market, there have been almost no similar companies successfully listed in the Shanghai and Shenzhen markets.

The Beijing Stock Exchange also seems to hold a cautious attitude towards the gaming industry.

According to investment banking sources close to the regulatory authorities, there are industry-specific obstacles for companies in various fields, including medical beauty, subject education, and gaming, to list on the Beijing Stock Exchange.

Although Yuanli Digital is not the owner of gaming copyrights, the digital content it produces is mainly used by game manufacturers, making it an important part of the gaming industry chain.

From past experiences, there have indeed been precedents of companies "related to" gaming successfully landing on the Beijing Stock Exchange.

In December 2022, Thunder God Technology (872190.BJ) was listed on the Beijing Stock Exchange, becoming the "first stock of e-sports equipment on the Beijing Stock Exchange."

During the listing inquiry process, the Beijing Stock Exchange required Thunder God Technology to explain its degree of dependence on the gaming industry.

In response, Thunder God Technology denied its dependence on the gaming industry, arguing that its products are mainly sold to individual consumers rather than gaming industry companies.

"The company's products are mainly sold to individual consumers through distributors, e-commerce platforms, and other channels, and there is no direct sale to game developers, game publishers, or game operators in the gaming industry. The company does not rely on sales to customers related to e-sports activities, and its sales model does not have direct intersections with the gaming industry," Thunder God Technology explained.

However, unlike Thunder God Technology, Yuanli Digital's performance is clearly closely related to the gaming industry, and whether it can successfully go public may also serve as an important barometer for similar projects.

Abandoning Original Works After Huge Losses

In addition to gaming, Yuanli Digital's business also involves the commissioned production of 3D animation content.

Yuanli Digital has participated in the 3D animation production of well-known animations and films such as "Monster Hunt 2," "The King's Avatar," and "A Record of a Mortal's Journey to Immortality."

It is worth mentioning that "A Record of a Mortal's Journey to Immortality" is the first domestic animated series produced using full real-person CG technology.

Real-person CG (Computer Graphics) refers to the creation and expression of real-life characters through computer technology, transforming real performances into digital characters through motion capture, facial capture, and other technologies From 2021 to 2023, the entrusted production business of 3D animation content generated revenues of 124 million yuan, 183 million yuan, and 232 million yuan, accounting for 30-40% of the total.

Through entrusted production, Yuanli Digital has accumulated rich experience and once aimed to produce original content independently, but this ended in failure, which is also one of the reasons for its previous IPO failure.

Since 2021, Yuanli Digital has been making strides towards the Growth Enterprise Market.

However, there were significant losses during the reporting period, with revenues from 2018 to 2020 being 351 million yuan, 311 million yuan, and 331 million yuan, while the net profit attributable to the parent company after deducting non-recurring items was -34 million yuan, 4 million yuan, and 47 million yuan, respectively.

One major reason for the losses was the poor performance of the animated film "Mama Duck," which Yuanli Digital shot, produced, and distributed.

"The company's profit scale is small and there are significant losses," Yuanli Digital pointed out. "Considering the listing review policies and situation at that time, its own performance, and adjustments in development strategy, the company decided to voluntarily withdraw the application documents."

Realizing the significant uncertainty in original content, Yuanli Digital chose to abandon this direction and firmly become a supplier for downstream manufacturers.

However, the New Third Board is welcoming original 3D digital content suppliers.

In December 2024, Hangzhou Xuanji Technology Co., Ltd. has submitted a listing application to the New Third Board, boasting several original 3D animation brands such as "Qin's Moon," "Tianxing Jiugong," and "Wugeng Ji."

Whether original or entrusted, both may not escape the impact of AI, as 3D content generation tools have already begun to appear on the market.

In 2024, the 3D large model company VAST launched the 3D content generation tool Tripo AI.

Currently, Tripo AI still has flaws in generating dynamic effects such as running, making it difficult to apply directly to high-cost projects like games in the short term. However, with technological advancements, it may bring disruptive changes to the media industry in due time.

Regarding the potential impact of AI, Yuanli Digital also acknowledged that failing to update and iterate technology in a timely manner could indeed affect market competitiveness.

If Yuanli Digital can successfully list on the Beijing Stock Exchange, it may also inject confidence into its peers