Jan. 16 (NBD) -- Game companies, also known as "cash cow," once again grabbed the attention of the capital market early this year. 

Figures compiled by NBD show that 10 game companies are currently waiting for the nod of China's securities regulator to launch an IPO, with six of them filing applications last year. 

Long way to go

In recent years, a great number of Chinese enterprises listed on overseas stock exchanges have been seeking to return to the A-share market through back-door listing, mergers or acquisitions. 

A report issued in mid-2017 by CNG, an institution dedicated to studying the game industry, says that there have been 166 listed game enterprises in China as of June 2017, of which 85.6 percent are listed on the A-share market. 

This reveals that the A-share market has stood out as the best choice for game enterprises' IPO. 

Out of the 10 companies waiting for IPO approval, three aim to get listed on the Shanghai Stock Exchange while seven hope to land on the Shenzhen Stock Exchange. 

Yet, there is a long way to go. 

Photo/VCG

4399 Network Co., Ltd, a game platform co-founded by legendary Chinese angel investor Cai Wensheng and tech entrepreneur Li Xingping, has been waiting for more than three years for the regulatory approval. 

The company filed for IPO on the Enterprise Growth Market of the Shenzhen Stock Exchange on December 10, 2014. To date, it has released two versions of share prospectus. 

However, the document released by the China Securities Regulatory Commission (CSRC) last Thursday shows that 4399 remains in the status of pre-disclosure update. 

Application of Suzhou Snail Digital Technology Co., Ltd. is still pending. 

The company submitted the IPO application three months later than 4399, which means it has also been waiting for nearly three years. 

According to the information posted on the website of the CSRC, miHoYo Technology (Shanghai) Co., Ltd. and Suzhou Snail Digital Technology Co., Ltd. updated their pre-disclosure statement in succession in January 2018. 

This makes the number of game enterprises in the state of pre-disclosure update to three out of 10, and the remaining seven are still in the initial stage, "feedbacks received from the regulator". 

Information disclosure, the key of inspection

Behind the long wait of game enterprises is the increasingly prudent attitude of the securities regulator. 

Since the IPO of G-bits Network Technology (Xiamen) Co., Ltd. on the Shanghai Stock Exchange on June 15, 2016, no more game enterprise has made their way through into the A-share market. 

Chengdu Nibirutech Co., Ltd., a mobile game company focusing on creating top-notch mobile games for global players, was informed by the Issuance Examination Committee of the CSRC in November 2017 that its IPO application had been rejected. 

According to the share prospectus, the Chengdu-based game publisher has built up a considerable user base around the world by virtue of a number of mobile games it is operating. 

Data from App Annie, the leader in app store analytics and mobile market intelligence, revealed that only seven Chinese companies made their mark on the app intelligence platform's top 52 mobile app publisher list in 2014, with Nibirutech holding the 45th spot in terms of turnover. Between 2013 and 2015, revenue from overseas markets contributed more than 90 percent to the Chengdu-based company's annual income. 

In the response to Nibirutech, the Issuance Examination Committee raised 26 questions, covering the record of overseas revenue, qualification for game operation, operation model, sustained profitability of games, financial figures, and outward investment description, being more detailed than ever before. 

Similar to Nibirutech's heavy reliance on overseas markets, miHoYo Technology (Shanghai) Co., Ltd., Beijing Microfun Co., Ltd., and Happy Elements, which are still waiting in the line for IPO approval, are largely relying on single hit game as well. 

The excessive dependence on single hit product is not only a challenge facing game companies' future growth, but also a source of concerns of the regulator. 

At a training session in Shenzhen in November 2017, an official with the Issuance Examination Committee said that the inspection focus against online game enterprises now lies in information disclosure. 

Game publishers should elaborate on their development and operation model, authorized operation model, as well as joint operation model. They should, at the same time, report their revenues, gross margin, and gross profit rate categorized by the types of business or game products. Not only so, details concerning game performance are required, the official added. 

As online game companies don't have physical products, it is difficult to trace their procurement and sales records. The regulator can only check the authenticity of information through the operation systems. This makes a sophisticated database extremely important. The database should be able to clearly display business and financial information and ensure the data reliability, the official stressed.

Email: lansuying@nbd.com.cn