Interview: LINEKONG Proving It's Got Game

MOBILE GAME DEVELOPER Linekong Interactive Group Co Ltd (08267) is achieving a broader global footprint without stepping on its own toes with its offshore M&A and R&D expansion strategy, an executive told Asia Fund Space.

The Beijing-based firm recently invested 20 million usd to open a new subsidiary in the San Francisco area in order to further explore the international mobile games market so as to strengthen its status in the sector both at home and abroad.


Asia Fund Space:  Linekong has already set up subsidiaries in South Korea and Taiwan, and your Chairman, Executive Director & CEO Mr. Wang Feng recently said internationalization is always one of the main strategies of the group, and was a prime consideration in establishing the new US-based firm.

What percentage of total market cap in the US subsidiary does your 20 mln usd represent?

Mr. Dominic Leung, CFO, Linekong:  It's a very good move that will promote good development for us, and is wholly-owned by Linekong, with the investment to be paid in stages, using a Cayman Islands structure.

We are planning to have around 20 designers and developers in our R&D department at the new subsidiary, and they will link up with our 10-strong R&D team in Taiwan, with design work mainly to take place in the US and coding work mainly slated for the Taiwan team.

Asia Fund Space:  Did the current weakening Chinese currency and expectations of an even weaker renminbi down the road help convince you to make this investment at this time?

Mr. Dominic Leung:  We began setting up the US subsidiary in June of 2015, so the current Chinese yuan weakness had no influence on this decision.

Of course, making profits in US dollars is currently a bonus as they'll translate into more Chinese yuan following currency conversion.

Asia Fund Space:  What are some of the differences in the approach to and execution of R&D and design that exist between, for example, the PRC and US-based R&D teams you've encountered?

Mr. Dominic Leung:  We've mainly been PRC-based in this regard over the past few years and our gaming series have generally been geared to China-based gamers who are more likely to be familiar with the cultural and historic references in our game product portfolio.

The CEO of our new US subsidiary recently said that it will focus more on gaming techniques and skill systems and more targeted toward the fun of the games, whereas the PRC-based designers will be slightly more sophisticated on the cultural content side .

Asia Fund Space:  GAMEONE (08282) listed by way of placing 40 million shares at 1-1.5 hkd per share, with the shares listed on Hong Kong's GEM Board on 13 January, with net proceeds of 25.6 million hkd recorded.

GAMEONE introduced Linekong and Taiwan-listed Soft-World International to be the cornerstone investors, which subscribed to three million hkd in shares.

Were the proceeds raised form this listing within expectations?

And is GAMEONE a direct competitor of yours, and if so, any chance for an M&A event down the road?

Mr. Dominic Leung:  GAMEONE stock has been performing very well, with its shares finishing its first day trading session last month at 3.75 hkd, triple the placing price of 1.25.

Hong Kong and Taiwan will remain the market focus of GAMEONE, a firm that will help us distribute our games, and we expect a long-term cooperation with the company.

Therefore, it is not our competitor as its footprint is mainly in Hong Kong and Taiwan, and we currently hold around a 2-3% stake in GAMEONE.

Asia Fund Space:  For January-September 2015, your company recorded a narrowed loss of 8.38 million yuan from that of 196 million a year prior.

Were these results within expectations, and can we possibly expect a return to a positive net profit for full-year 2015?

Mr. Dominic Leung:  We haven't provided any full year 2015 or 2016 guidance yet, but I can say that we expect our top line to grow around 30% this year.

The year 2015 wasn't a good one for us as we listed in December 2014 and we only brought three or four games to commercialization in 2014, but just one in the first nine months of 2015.

For the year 2016, we expect to commercialize six new games.

That's why we expect a much better showing this year.

Linekong Interactive Group Co Ltd is a mobile game developer and publisher. The Company develops online games and licenses games from third-party game developers.

(Note: This story is contributed by Andrew Vanburen. Mr. Vanburen has served as a government official focused on international trade at the American Institute of Taiwan in Taipei, and worked in financial journalism for nearly a decade in both Beijing and Shenzhen. He holds a Master's Degree from New York University. He is currently Director at Hong Kong-based Asia Fund Space. For more information, please visit: www.asiafundspace.com)