Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
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Company Introduction
MARKET DATA
Symbol Exchanges Current Price Price Target Rating Outstanding Shares Market Cap. Average 3-m Volume
0.3
Thousands
Amico Games Corp. Address: Amico Games Corp 201 Spear Street, Suite 1100 San Francisco, CA ZIP: 94105 Tel: +1 877 331 8777 Email: info@amicogames.com Web: http://www.amicogames.com
AMCG OTC BB $0.65 $1.44 Speculative Buy 72 Million $46.80 Million n/a
Source: : Yahoo Finance, analyst estimates FY ending August 31.
On November 27, 2009, Amico Games Corp. (AMCG) entered into a share-exchange agreement with Vodafun Limited and Tian Yuan, Vodafun’s former sole shareholder. As a result of this agreement, AMCG acquired 100% of Vodafun’s common shares from Tian Yuan in exchange for 54,500,000 shares of AMCG common stock. Vodafun had signed agreements with Galaxy Software (Guangzhou) Limited, a producer and distributor of video games played on mobile phones for the Chinese market, which gave Vodafun full control of Galaxy’s operations and cash flows. Through its ownership of Vodafun, AMCG now controls Galaxy. As a result, AMCG has emerged as a cutting-edge interactive entertainment media company specializing in multi-player networked mobile phone games and serving the Chinese market. AMCG offers a portfolio of diversified gaming content, including some of the most popular massive multi-player online role-playing games and advanced casual online games in China. AMCG’s interactive entertainment platform has attracted a sizable, growing subscriber base. The Company’s game-registered user base rose 129% in 2009 to exceed 20.6 million. Each user has the ability to interact with thousands of other users and participate in the Company’s interactive entertainment content. AMCG’s games work across both JAVA™ and WAP (wireless application protocol) platforms over 3G and 2.5G mobile telecommunication networks in China. AMCG is the first Chinese company to work with Nokia (the world’s leading mobile phone supplier) to develop Java™ multiplayer mobile phone games. In addition, the Company is the first
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
to provide popular wrestling genre games and multi-player games over the WAP platform of China Mobile™.
Investment Highlights Market leader in WAP mobile gaming segment of China AMCG develops and distributes interactive multiplayer mobile phone games through industry leading 2.5G and 3G technology platforms (including WAP and Java™) for the Chinese market. The Company has developed more than 10 mobile phone games and grown its game-registered user base to exceed 20 million. AMCG is already recognized as a market leader in networked WAP gaming in China. Strong mobile phone game portfolio AMCG’s portfolio includes some of the most popular massive multi-player online role-playing games and advanced casual online games in China. The Company currently distributes the following WAP Games: Miracle Journey to the West, Fantasy Wulin ,and Miracle Jiutian and the Java TM platform game Journey to the West OL. By year-end 2009, Miracle Journey to the West had accumulated more than 15 million registered users and an impressive 11.1% share of China’s multiplayer WAP game market. In addition, AMCG was the first Chinese company to cooperate with Nokia to develop Java™ multi-player mobile phone games and the first to supply wrestling genre games and multi-player games over the WAP platform of China Mobile™ (the world’s largest mobile network). Huge market opportunity China is the world’s largest mobile telecommunications market, with 724 million mobile phone users at year-end 2009. Despite the large user base, mobile telephony penetration was only around 55% in China last year, which is well below 90% penetration in the U.S. and 125% penetration in Germany. This gap offers a significant growth potential since China expects to reach developed countries’ penetration levels in a relatively short period of time. The enormous mobile phone consumer base provides a solid foundation for the development of mobile games applications. According to Enfodesk and Analysys International, China’s mobile phone game market revenues rose nearly 63% in 2008 to approximately $200 million (RMB 1.365 billion). With the recent increases in the use of third-party payment gateways and more efficient distribution models, mobile phone game market volume is expected to grow substantially. Enfodesk and Analysys International predict revenues for China’s mobile phone game market will rise to $394 million in 2010 and $616 million in 2011. This market growth is due primarily to the rapid growth in mobile phone ownership, expansion of 3G network availability and improvements made by mobile phone game developers in designing, managing and marketing their products. Impressive growth story AMCG is poised to capitalize on stellar growth in China’s mobile games market. The Company’s revenue rose nearly 40% in FY 2009 and 61% in Q1 2010, compared to the same prior periods. Moreover, the number of total game-registered users rose 129% to more than 20.6 million last year. Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Business Model AMCG develops and distributes mobile phone games for the Chinese market. The term “mobile phone game” refers to video games which are downloaded and played on mobile phones that are commercially available in China’s retail market. The Company provides interactive multiplayer mobile phone games through industry leading 2.5G and 3G technology platforms, including WAP and Java™. Its games offer users high quality graphics, rich content and interactivity. Since 2001 the Company has developed more than 10 mobile phone games. Wireless Application Protocol (“WAP”) is a widely utilized open international standard for communication between mobile handsets or PDA’s and the mobile Internet. A WAP browser provides all of the basic services of a computer-based Web browser, but simplified to operate within the restrictions of a mobile phone such as its smaller view screen. The Company began migrating its mobile games to the WAP 2.0 platform in October 2009 and has now completed the first stage of this process. AMCG expects to complete the move by July 2010. The migration to the WAP 2.0 platform should greatly improve gaming experience and performance for WAP games subscribers. AMCG launched its Miracle Journey to the West game in May 2006. Two other WAP games, Miracle Jiutian and Fantasy Wulin, were launched in July 2007 and October 2008, respectively. The Company also provides fully interactive networked mobile phone games using the popular Java application platform. Java technology was designed by Sun Microsystems to enable mobile device applications. Java applications are portable across many devices, yet leverage each device’s native capabilities. Initial testing of AMCG’s first Java game, Journey to the West OL began in June 2008, and the game began generating revenues in May 2009.
Products The Company has developed more than 10 mobile phone games. Information about AMCG’s currently operated mobile phone games is provided below:
Miracle Journey to the West
Fantasy Wulin
Journey to the West OL
Miracle Jiutian
Development Platform
WAP
WAP
Java ™
WAP
Mobile Network
2.5G
2.5G
2.5G
2.5G
May 2006
August 2008
May 2009
August 2007
15,861,021
3,000,812
1,740,106
n/a
Open Beta Test Date Registered Users as of December 31, 2009
Source: http://www.marketwire.com/press-release/Amico-Reports-First-Quarter-and-Three-Month-Results-1107918.htm
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Miracle Journey to the West Game Type: RPG (Role-Playing Game) Game Platform: WAP Game Size: 200K Adaptive Mobile Phone: All types Total Registered Users: 15,000,000 Launch Date: May 1, 2006 Miracle Journey to the West is an adaptation of a famous Chinese classic novel, Journey to the West. The game incorporates many of the classic sites, scenes and roles from the novel and provides players with a splendid visual experience through real-time mapping, real-time fighting effects and other WAP graphic treatment technologies. It also provides players with mutual game play functions such as fighting, upgrade, skill, task, PK (Player Kill), transaction, chatting and team PVE (Player Versus Environment). Miracle Journey to the West has more than 15 million registered users and an 11.1% share of China’s multiplayer WAP game market. This makes the Company the market leader of networked WAP gaming in terms of registered users. Fantasy Wulin Game Type: RPG (Role-Playing Game) Game Platform: WAP Game Size: 200K Total Registered Users: 2,300,000 Adaptive Mobile Phone: All types Launch Date: August 2008 Fantasy Wulin is a multi-player mobile phone role-playing game and is based on Chinese traditional paladin stories. Players assume a fictional character made famous in the Wulin paladin, interact with other players and challenge an artificial intelligence to become a Wulin paladin in the game. The game provides rich scenarios and diversified interactive environments for extended and repeated gaming.
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Journey to the West Online
Game Type: RPG (Role-Playing Game) Game Platform: Java™ Game Size: 350K Total Registered Users: 1,000,000 Adaptive Mobile Phone: Nokia (6681, 6670, 6600, 6260, 3230, 7610, N70, 3250, N91, N72, N7370, N6270, N6131, N5300, N6300, N7373, N73, N93, E50, N71, E62, N5500, N95) Motorola (L7, U6, V360, V3i, E2) Sony Ericsson (K758c, K750c, K700c, W550c, W600c, W810c, Z550c, W700c, K550C, W610C, W710C, W800C, Z558C, Z710C, M608c, W958c) Samsung (E728, E628, D508, D428, P738, D608, D808, D828, D838, D848) Panasonic (PanasonicX700, PanasonicX800) Launch Date: May 2009
Journey to the West Online is a MMORPG (Massive Multiplayer Online Role-Playing Game) mobile phone JAVA™ platform game. The virtual game world is based on Chinese mythology and interpreted in a popular cartoon design style, providing a rich PC-quality online game experience. The game has a task centered structure complete with underground cities and interesting interactions with the virtual world. It builds long-term relationships for users through interactions and opportunities for players to upgrade/ enhance their fictional character’s status and skills. It also facilitates extended gaming through access to secret communities, other countries, marriage, housing, etc. In May 2009, the game was cooperatively launched on Tencent’s game platform. By November, Journey to the West Online was already ranked as Tencent’s No. 1 game in terms of concurrent online players and revenues. By year-end 2009, the game had more than 1.7 million registered players, reaching at one point a staggering concurrent online total exceeding 10,000 players. The Miracle Jiutian Game Type: RPG (Role-Playing Game) Game Platform: WAP Game Size: 200K Total Registered Users: 100,000 Adaptive Cell Phone: All types Launch Date: August 2007
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
The Miracle Jiutian is a multiplayer mobile phone game designed around a classical Chinese martial-arts story. The game environment is a highly stylized virtual world with eastern martial-arts characters, in which many famous Chinese factions and cities are uncovered. This game was initially distributed by DownJoy in July 2007 and has been distributed by Guangzhou Lingxian Digital Technology since October 2009.
Distribution and Customers The Company distributes its mobile phone games to end-customers through select mobile service providers, who are able to enhance the visibility of AMCG mobile phone games through their established subscriber bases. AMCG distributors set up WAP-based internet sites which the public can download the mobile games. AMCG has cooperative arrangements with the following Chinese mobile value-added service providers: • Shenzhen Tencent Computer System Co. Ltd. (“Tencent”), a Chinese company listed on the Hong Kong stock exchange. Tencent is China’s largest and most used Internet service portal. Its instant messaging platform QQ is the most popular instant messaging tool in China. As of June 30, 2009, the number of registered QQ Instant Messenger users stood at 990 million. Active users numbered 448 million in December and peak concurrent users exceeded 90 million. Tencent also operatesPaiPai.com, China’s second largest Internet shopping platform. At present, Tencent provides 22 servers to host the Company’s mobile phone games. Tencent is the major distributor and key partner for the following games: Miracle Journey to the West, Fantasy Wulin and Journey to the West OL. • Downjoy, one of the largest mobile phone game portals, distributes mobile phone games through its www.d.cn gateway. Downjoy has more than 30 million mobile phone users and 6 million multiplayer mobile phone game users. From 2008 to 2009 Downjoy distributed AMCG’s Miracle Jiutian game, but the agreement expired in August 2009. The Company doesn’t plan to renew this distribution arrangement, but expects to use Downjoy as a distributor for some future products. • Lingxian Digital Technology Co. Ltd. began distributing Miracle Jiutian in October 2009. In addition, AMCG has distribution relationships with key telecommunication operators such as China Mobile and China Unicom. The Company’s games use a third-party payment system provided by China Mobile. The Miracle Jiutian game will be operated on the China Unicom game center and distributed directly by this operator. The Company’s markets its products through online advertising and customer referrals which leverage the mass communities established by its distributors. The sales and marketing group work closely with research and development and technology development departments to coordinate product launches, meet demand and for supply planning.
Industry Outlook The installed base of mobile devices (mobile phones, iPhones, Blackberries, Palms) is large and growing. The proliferation of wireless broadband devices and the evolution of handset technologies enhance the mobile experience and increase the relevance and opportunities of mobile commerce and advertising. Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
The mobile applications market has become more colorful with each passing year. Gaming and media applications have proven to be some of the most popular. As the mobile applications market evolves, increasingly rich applications become available. The market for mobile applications remains highly fragmented and smaller thirdparty application developers are emerging that focus on specific business activities. In addition, the successful development of mobile applications require along with the application itself, a broad network of mobile devices, data carriage, and integration expertise. Therefore, mobility solutions require a range of device manufacturers, software makers, network carriers and professional services firms to get products and their capabilities to align seamlessly with business processes. Mobile Phone Market Stronger-than-expected sales in Western Europe and acceleration in the grey market in the third quarter of 2009 drove worldwide mobile device sales to end users to 1.214 billion units in 2009, according to Gartner. Mobile Terminal Sales to End Users, Worldwide, 2006-2010, million units
Source: http://www.gartner.com/it/page.jsp?id=1256113, http://www.gartner.com/it/page.jsp?id=612207
In 2009, the recession impacted disposable incomes and extended replacement cycles in mature markets from 12 to 18 months. Gartner expects replacement cycles globally to return to normal within two years, with the introduction of more aggressively priced smart phones and shorter contracts. Gartner also predicts second-hand sales in emerging markets and SIM-only sales globally will stabilize in 2010 and begin decreasing in 2011 as consumer spending recovers. Despite the apparent decline in mobile phones sales, mobile subscriptions worldwide continue to grow. As developing mobile markets such as Brazil, Russia, India and China add more subscribers, global mobile phone penetration could exceed 50% worldwide by 2013.
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Global Mobile Phones Subscriptions and Penetration (millions and % of population)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Subscriptions
% of population
1,960 2,282 2,591 2,825 3,022 3,203 3,364 3,531 3,685
30% 34% 39% 42% 45% 47% 49% 51% 53%
Source: http://www.emarketer.com/Article.aspx?R=1006855
At present, smart phones account for 22% of the entire mobile market, which is helping to increase Web-based services on the mobile network1. These high-end devices represented around 10% of the global mobile phone market by units in 2007, with annual growth of 60%, making them one of the fastest growing segments of the technology industry. Mobile Content After years of strong growth, mobile phone markets in several major world markets are maturing, resulting in slower subscriber growth and declining Average Revenue per User for wireless communications carriers. Providing additional content is key to increasing average revenue per user. As a result, mobile-service carriers and content providers are establishing new business models to capture the growing opportunity. The new 3G networks offer increased bandwidth and require compelling applications and content to drive revenues for operators. At present, data content accounts for 20%-25% of revenue for the top 20 international carriers. The global market for mobile phone premium content, including music, gaming and video, is expected to expand to more than $64 billion by 2012, according to Juniper Research.
1. www.letsgomobile.org/en/3392/mobile-device-market-trends/
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Global Mobile Content Market, $ Billions
Source: http://moconews.net/article/419-mobile-content-to-grow-to-64-billion-by-2012-led-by-music-games-video-r/
Mobile music, led by ringtones and ring tunes, represents the largest and fastest-moving premium-content segment. Mobile music revenues are poised to rise from nearly $9 billion in 2007 to $17.5 billion in 2012, bolstered by the increasing availability of full-track download and streamed services, the former in both paid-for and rental formats. Video games in their original versions on PCs or consoles represent a form of entertainment recognized across a wide population, while portable consoles have also taken the market a step toward gaming on a mobile device. The mobile gaming market is growing beyond its fledgling roots as game quality improves and titles proliferate. The major video gaming companies, including Electronic Arts and THQ, have reorganized themselves to focus on this growing opportunity. Mobile games are expected to be second in terms of end-user generated revenues (which may exclude advertising), rising from $5 billion in 2007 to nearly $16 billion in 2012, according to Juniper. The market for mobile video and TV is still at the nascent stage; however, it offers one of the most significant longterm opportunities in the mobile-content market. Juniper expects Mobile TV revenues to rise from $1.4 billion in 2007 to $11.9 billion in 2012. The remainder of the market will come from other sectors such as User-generated Content, Gambling, Adult and Infotainment. Juniper reckons that adult content and gambling will be limited by regulations. On a regional note, Juniper predicted that China and the Far East will remain the largest regional market for mobile entertainment, with revenues rising from $8.5 billion in 2007 to nearly $21.3 billion by 20122. Chinese Mobile Games Market In recent years, the telecommunications industry in China has grown at a rapid pace, particularly in the mobile telecommunications segment. China is the largest mobile telecommunications market in the world, with 724 million mobile phone users as of December of 2009, according to data published by the China Ministry of Industry and Information Technology. 2. http://moconews.net/article/419-mobile-content-to-grow-to-64-billion-by-2012-led-by-music-games-video-r/
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
China Mobile Subscribers, millions
Source: http://www.itu.int/ITU-D/ict/statistics/index.html, http://www.telecompaper.com/news/article.aspx?cid=714126
Despite the strong growth, mobile telephony penetration in China was only around 55% at year-end 2009 versus 90% in the U.S. and 125% in Germany. This gap suggests significant growth potential; China expects to reach developed countries’ penetration rates in a relatively short period of time. Of the entire mobile phone user population in China, approximately 25% or 181, million users use their cell phone to surf the Internet. While voice usage has been the major revenue source for China’s providers, the rapid development of data transmission available on mobile networks creates a huge opportunity for mobile valueadded services such as games. According to statistics compiled by Enfodesk and Analysys International, China’s mobile phone game market grew 63% in 2008 to approximately $200 million (RMB 1.365 billion) in sales. China Mobile Game Market Revenue, $ millions
Source: http://www.zero2ipo.com.cn/en/n/2009-5-11/2009511161752.shtml
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
According to 2009 statistics compiled by Analysys International, China had 6.98 million active mobile phone game players in 2008. Of these, 40% (or 2.8 million players) were playing multiplayer games. Analysys predicts the population of multiplayer gamers grew 60% in 2009. Enfodesk and Analysys International expect the market value of China’s mobile phone game to rise to RMB 2.68 billion (or $394 million) in 2010 and RMB 4.21 billion (or $616 million) in 2011. Market growth is attributable to rapid growth in mobile phone ownership, reaching more than 720 million users in 2009, the expansion of 3G network availability and improvements made by mobile phone game developers in their products. According to Analysys International, JAVA games occupied 72% market share in 2008.
Financial Analysis The Company generally recognizes revenue when its products are sold and splits the revenue earned with its partners who provide the platform, the largest of which is Shenzhen Tencent Computer System. AMCG presently operates four cell phone games, each of which can be downloaded for free to the user’s mobile hand set. Revenues are recognized when end users purchase virtual goods to enhance the competence of their game characters or send text messages to other game players. For the fiscal year ended August 31, 2009, AMCG generated $1,258,765 in revenues, compared to revenues of $908,447 in FY 2008. Income Statement, $
Revenue Total operating expenses Selling expenses General and administrative expenses Depreciation Income From Operations Other income Income Before Income Taxes Income Tax Expense Net Income
FY 2008
FY 2009
908,447 696,301 106,922 576,071 13,308 212,146 317 212,463 (8,966) 221,429
1,258,765 999,834 389,906 595,092 14,836 258,931 236 259,167 61,672 197,495
% chg Q1 FY 2008 FY 2009
% chg
467,526 319,248 141,924 172,963 4,361 148,278 (25) 148,253 21,031 127,222
60.7% 32.6% 704.9% -20.9% 0.6% 195.3% n/m 193.4% 237.7% 187.2%
38.6% 43.6% 264.7% 3.3% 11.5% 22.1% -25.6% 22.0% -787.8% -10.8%
290,964 240,749 17,632 218,780 4,337 50,215 314 50,529 6,227 44,302
Source: SEC Filings, FY ending August 31.
Revenues for Q1 FY 2010 rose 60.7% year-over-year to $476,526 while net income grew 187%. The last quarter suggests that AMCG’s growth is beginning to accelerate. As of November 30, 2009, AMCG had $351,362 in cash, current assets of $851,146, and a working capital surplus of $296,533. During FY 2009 and Q1 FY 2010, AMCG financed its operations mainly from operating cash flows.
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Balance Sheet, $ Aug. 31, 2009
Nov. 30, 2009
Total Current Assets Cash and cash equivalents Accounts receivable, net Long term assets Total Assets
612,188 191,470 390,082 31,991 644,179
851,146 351,362 467,606 31,663 882,809
Total Current Liabilities Total stockholders’ equity
442,971 201,208
554,613 328,196
Net Working Capital
169,217
296,533
Source: SEC Filings, FY ending August 31.
The Company anticipates that it will meet the ongoing cash requirements by retaining income as well as through equity or debt financing. In addition, AMCG plans to speed up production and distribution of its products and aggressively expand its market share, which may require an infusion of outside capital. Management estimates $5 million in financing will be needed to speed up the business plan implementation.
Outlook and Valuation AMCG is an important player in China’s mobile phone game market. The Company’s revenues increased almost 40% in FY 2009 and 61% year-over-year in Q1 2010. In the past 12 months, the number of total game-registered users increased 129% to 20.6 million. Going forward, the Company plans to accelerate growth by developing and licensing additional games and technologies and further expanding its registered user base. AMCG plans to: 1. Develop software which will allow users to generate maps and game play scenarios for Journey to the West OL. 2. Complete the development of Journey to the West Online II and launch the game in September, 2010. 3. Develop software allowing users to operate games on a larger number of platforms such as the iPhone and personal computers. 4. Develop WAP 2.0 support for the WAP games to take advantage of the benefits offered by this newer standard. 5. Develop additional Java games as the Chinese telecommunication network moves towards 3G compatibility. AMCG hopes to establish itself as a leader in this developing area. 6. Create in-game ‘goods’ which may be purchased by the players to increase their game experience or enhance their game status, providing the Company with additional revenues. Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
7. Develop a proprietary online mobile game platform and transition from a content provider to a service provider model by allowing players to access the games directly from AMCG’s Web sites. 8. Investigate the possibility of licensing foreign developed games for use in the Chinese network. Taking into account China’s huge telecommunication market and fast growing demand for mobile entertainment, we are confident that the Company will be able to leverage its leadership position in mobile games and generate 80%-100% annual sales growth over the next three to five years. Revenue and EPS Projections $ FY 2008
FY 2009
FY 2010E
FY 2011E
FY 2012E
908,447 696,301 212,146 317 212,463 (8,966) 221,429 n/m
1,258,765 999,834 258,931 236 259,167 61,672 197,495 n/m
2,511,002 1,151,293 1,359,709 0 1,359,709 462,301 897,408 0.01
15,147,554 1,649,726 3,497,828 0 3,497,828 1,189,261 2,308,566 0.03
10,037,730 2,147,746 7,889,985 0 7,889,985 2,682,595 5,207,390 0.07
Revenue Total operating expenses Operating income Other income Income Before Income Taxes Income Tax Expense Net Income Diluted EPS
Source: SEC Filings, analyst estimates, FY ending August 31.
We expect the Company to nearly double revenues in FY2010, FY 2011 and FY2012 and leverage operating expenses to achieve $5 million in net earnings in FY 2012.
Valuation Our peer group includes wireless value-added service providers, Internet portals and mobile games providers in China. AMCG’s peers currently trade at a 12.78x forward P/E multiple to forecasted 2010 EPS. We believe that the Company deserves a premium valuation relative to the peer group because of its leadership position in China’s fast-growing mobile games segment, We value AMCG at a 19.95x forward P/E multiple. TICKER SYMBOL
PRICE PER SHR, $
MRKT CAP $ Mn
Shanda Interactive Kongzhong Corp. Sina Corp. Netease.com Inc. Sohu.com Inc. Peers’ median
SNDA KONG SINA NTES SOHU
46.90 7.98 35.93 33.10 48.85
AMICO GAMES CORP
AMCG
0.65
COMPANY NAME 2/4/2010
2009
2010
2009
2010
Revenue growth 10 vs. ‘09
3,140 271 1,940 4,280 1,880
13.67 21.57 29.94 16.31 12.46 16.31
12.78 19.95 23.18 11.78 10.28 12.78
4.10 2.15 5.43 7.85 3.12 4.10
3.23 1.86 4.54 5.14 2.57 3.23
27% 16% 20% 53% 21% 21%
46.80
20.27
8.99
9.09
4.66
95%
P/S
P/E
Source: Yahoo Finance and analyst estimates.
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Applying a 19.95x forward P/E multiple to out FY 2012 EPS estimate, we obtain a target price of $1.44 for AMCG shares. We are initiating coverage of AMCG with a Speculative Buy rating and a $1.44 price target. However, we strongly advise investors to consider the risk factors mentioned below since the Company faces many challenges in achieving its revenue growth goals.
Risks Early stage business Although AMCG commenced its mobile games business in 2001, it is still in the early stage of development and focusing resources on strategic planning, fund raising and distribution channels. The failure to successfully develop, commercialize and widely distribute its mobile application could result in net losses. Dependence on Shenzhen Tencent Computer System for revenues AMCG derives a large portion of revenues from cooperative arrangements with Tencent, who distributes the following games: Miracle Journey to the West, Fantasy Wulin and Journey to the West OL. If the strategic relationship with Tencent is terminated, scaled-back, or altered, AMCG’s business could be adversely affected. Industry technological change The industry in which the Company operates is subject to rapid technological changes, which may quickly render its services less desirable or even obsolete. The introduction of new technologies, as well as new alternatives for the delivery of services, could adversely impact AMCG. Competition The mobile applications market is highly competitive. Many of AMCG’s competitors have substantially greater financial, technical, marketing and distribution resources, larger customer bases, and longer operating and product development histories. There can be no assurance that the Company can successfully compete with new products and technologies introduced by competitors. Political risk The Company operates in the Peoples Republic of China (PRC). Accordingly, the Company’s business, financial condition and results may be influenced by China’s political, economic and legal environment and the state of the PRC economy. The Company’s operations are subject to risks not typically associated with companies in North America such as changes in government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
Management Peter Liu Chief Executive Officer
Peter Liu is the CEO of Amico Games Corp. He is also the founder and executive director of Galaxy Software (Guangzhou) Limited. Mr. Liu has rich experience in mobile phone game application development and business management. He was one of the earliest pioneers in the Chinese mobile phone gaming market. Prior to establishing Galaxy Software, Mr. Liu worked with Asian Information Resources (Guangzhou) Company Limited. Mr. Liu holds an Executive MBA training course degree from South China University of Technology. He also completed training courses in financial management from South China Normal University and computer application from Sun Yat-Sen University.
Wing Kuen Ha Chief Financial Officer
Wing Kuen Ha has more than 20 years experience in auditing, financial reporting and transaction advisory services. Mr. Ha has been an executive director, group financial controller and corporate secretary for several publicly traded companies listed on the Hong Kong Stock Exchange. Mr. Ha holds a master’s degree in professional accounting from the Open University of Hong Kong. He is also a fellow member of The Association of Chartered Certified Accountants and The Hong Kong Institute of Certified Public Accountants.
Yuan Xu Chief Operating Officer
Yuan Xu has served as the general manager of Galaxy Software (Guangzhou) Ltd. since 2006. Mr. Xu brings 14 years of administrative and management experience in the Chinese telecommunication industry. Prior to joining AMCG, Mr. Xu was the CEO of Guangdong Renwoxing Information Industry Co. Ltd. from 2003 to 2005. From 2001 to 2003, he served as general manager of the Hainan Branch Company of Guangdong Jinzhonghua Communication Service Company, Limited. Mr. Xu received a bachelor degree in Chinese Linguistic Literature from Anhui University in 1991.
Lin Zhong Chief Technology Officer
Lin Zhong is AMCG’s chief technology officer. In 2002, Mr. Zhong joined Galaxy Software and was promoted to technology director in 2003. He has developed multiplayer mobile games for a number of mobile platforms, including SMS, WAP and Java. Mr. Zhong is the system analyst and project manager for most of Galaxy Software’s mobile games. He received his bachelor’s degree in computer science and technology in 2000 from National University of Defense Technology of China.
Michael Glass Director of North American Development
Mr. Glass has successfully developed and implemented enterprise-wide business applications and software tools for industry-leading companies such as Microsoft, Cisco Systems, Intel, British Telecom and BC Hydro. Over his 20+ year career, he has guided projects through every stage of development, from initial concept to cost/benefit analysis, requirements gathering and approval, design, development, implementation and post implementation review. He holds a bachelor’s degree in computer science from Lanchester Polytechnic Rugby UK (now Coventry University).
Amico Games Corp. (OTCBB: AMCG)
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Analyst: Victor Sula, Ph.D. Initial Report February 8th, 2010
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We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information). We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org. All decisions are made solely by the analyst and independent of outside parties or influence. I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report. Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.
Amico Games Corp. (OTCBB: AMCG)
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