Molin's main business game business quarterly losses and high performance commitments drive valuation growth rate of more than 300%

Wolong Real Estate said that the acquisition of Molin shares will bring considerable net profit growth to it. Molin shares has a considerable net profit in 2015 and the first quarter of this year. However, the reporter found through public data that Molin shares, which often has a monthly turnover of more than 10 million yuan. The main business has fallen into losses for several consecutive quarters. In 2015 and the first quarter of this year, the realization of high profits in financial reports relied entirely on the sale of equity in subsidiaries.

Original title: Dismantling of the target of Wolong Real Estate's 4.4 billion acquisition: Molin's main business of games suffered losses and relied on "selling" in the circle of friends to make profits.

Rumors of "banning cross-border mergers and acquisitions" in May blew like a gust of wind. Cross-border mergers and acquisitions by listed companies have not stopped. Film, television and games are still popular directions for capital pursuit. The volume of M & A assets and the amount of performance gambling have hit new highs from time to time.

On the evening of July 29, Wolong Real Estate released a transaction plan, planning to acquire 97.714% equity of Molin Shares for 4.409 billion yuan. Based on the latter's net assets, the actual value-added rate of Molin Shares reached 374%. The two parties signed a bet agreement far exceeding current performance.

Wolong Real Estate said that the acquisition of Molin shares will bring considerable net profit growth to it. Molin shares has a considerable net profit in 2015 and the first quarter of this year. However, the reporter found through public data that Molin shares, which often has a monthly turnover of more than 10 million yuan. The main business has fallen into losses for several consecutive quarters. In 2015 and the first quarter of this year, the realization of high profits in financial reports relied entirely on the sale of equity in subsidiaries.

In the overall downward trend of web games, the main business of Molin Co., Ltd., which has failed to achieve results in transforming mobile games and end-games, is likely to continue to decline. In addition to the net assets of 950 million yuan on Mo Lin's book, he holds multiple game companies that are to be withdrawn. Equity investment has become the most imaginative part of this acquisition. If a strong explanation for the "divine growth" of future net profit cannot be proposed, Molin Co., Ltd. may still need to rely on "resell" equity methods to achieve high gambling performance.

What is more noteworthy is that eight institutions entered the market accurately. If the transaction is completed, they will become the biggest winners. It has only been one year since they invested in Molin shares, and their book market value has increased by 50%.

Capital routine: High growth commitments support high-premium acquisitions

According to Wolong Real Estate's "Issuing Shares and Paying Cash to Purchase Assets and Raising Supporting Funds and Related Party Transactions Plan"(hereinafter referred to as the "Transaction Plan"), it is planned to purchase 97.714% of the shares of Molin Shares held by shareholders of Molin Shares (13 companies and 4 natural persons including Chen Mo) by issuing shares and paying cash. The transaction price was initially determined to be 4.409 billion yuan, of which 2.1 billion yuan will be paid in cash and 2.3 billion yuan will be paid in non-public issuance of shares.

This also means that the total valuation of Molin shares will reach 4.511 billion yuan. The transaction plan released by Wolong Real Estate shows that the transaction price has a premium rate of 30% compared with the market value of Molin shares. However, Molin shares had already carried out a round of premium valuation in March this year. Based on the net assets attributable to shareholders of the parent company of approximately 950 million yuan, the evaluation agency gave an estimated value of 100% equity of Molin shares of approximately 4 billion yuan, with a value-added rate of 322.46%. If calculated accurately based on net assets, Wolong Real Estate's overall valuation and appreciation rate of Molin shares should be 374%.

In fact, Molin shares account for a certain share in the online game circle, but due to the lack of well-known IPs, their reputation in the game circle is not the top. The "Trading Plan" shows that Molin Co., Ltd. is a game company mainly engaged in the research and development and authorized operation of online games. It was listed on the New Third Board in December 2015. It has developed page game products such as "Beauty Qin","Battle of the Dragon Three Kingdoms","Unparalleled Wind and Cloud", and "Ancient Sword Qitan web" and mobile game products such as "Dream Diao Chan" and "Immortal War". At the same time, it is developing end game products such as "New Wind and Cloud" and "Armored Storm".

Wolong Real Estate said that after the transaction is completed, the company will shift from a single real estate development business as its main business to a dual main business listed company with both real estate development and online games. At the same time, through this transaction, Molin shares will become a holding subsidiary of the listed company and continue to bring higher net profits to the listed company.

According to Molin's financial data, as of March 31, 2016, Molin's total assets were 1.133 billion yuan, and the total owner's equity was 951 million yuan. In addition, it achieved operating income of 464 million yuan, 293 million yuan and 59 million yuan in 2014, 2015 and January to March 2016 respectively, and net profits attributable to owners of the parent company were 55.0664 million yuan, 175.0299 million yuan, and 249.9070 million yuan respectively.

In this high-priced acquisition, Molin Co., Ltd. gave an incredible performance commitment. The performance compensation obligors of Molin Co., Ltd.(Chen Mo, Shenzhen Mofei, and Guomo Tianxia) promised that Molin Co., Ltd. The net profit achieved in 2016, 2017, and 2018 shall not be less than 360 million yuan, 450 million yuan, and 562.5 million yuan. If we compare the net profit of 175 million yuan in 2015, the net profit growth of Molin shares in the next three years will need to reach 110 million yuan, 90 million yuan and 116 million yuan respectively, with year-on-year increases of 105%, 25% and 25%.

Secretary Dong said: In the second half of the year, Molin shares will have 6 or 7 web games launched, which will bring good profits.

Judging from the performance of Molin shares in 2015 and the first quarter of 2016, the growth of the game company's net profit can be called "heaven against the sky", but the reporter combed and found that Molin shares are actually a company whose main business-games are in loss.

Financial data of Molin shares shows that the difference between its net profit and net profit deducted from non-profit is very wide. In 2014, Molin's operating income was approximately 464 million yuan, net profit attributable to the parent company was 55 million yuan, and net profit after deducting non-profit was 52.9378 million yuan. With the decline in the profitability of core games, operating income in 2015 fell sharply to 293 million yuan, and net profit after deducting non-profit was-76 million yuan, but net profit attributable to the parent company was 175 million yuan; In the first quarter of 2016, operating income was 59.27 million yuan, net profit after deducting non-profit-5.2815 million yuan, and net profit attributable to the parent company was approximately 250 million yuan. Where did such high net profits come from?

The reporter looked through the 2015 financial report released by Molin Co., Ltd. and learned that the non-current profit and loss items of Molin Co., Ltd. mainly came from the profit and loss on the disposal of non-current assets, which received approximately 338 million yuan and approximately 6.26 million yuan in government subsidies. Among them, the disposal of non-current assets mainly refers to the investment income brought by the disposal of subsidiaries such as Shanghai Lingyu and the return of 337 million yuan from the investment income calculated by the equity method. On October 26, 2015, Molin shares will hold Shanghai Lingyu's 60% equity was transferred to the actual controlled enterprise of Wang Rui, a minority shareholder of Shanghai Lingyu, at a price of 360 million yuan. After deducting income tax and share-based payment gains and losses, a non-recurring profit and loss amount of 230 million yuan was obtained.

This means that in 2015, Molin's main game business has entered a loss, mainly relying on the sale of subsidiaries to bring in a net profit of 175 million yuan.

Molin's operating income in the first quarter of 2016 was only 59.29 million yuan, and its net profit after deducting non-profit was-5.28 million yuan, but it achieved a net profit attributable to the parent company of 253 million yuan. Where did the profit of 253 million yuan come from? Molin shares did not disclose in detail the source of profits in the first quarterly report.

The reporter learned from the "Transaction Plan" issued by Wolong Real Estate that Molin shares transferred 30% equity of its subsidiary Shanghai Mokun to Xizang Taifu Cultural Media Co., Ltd. on February 4 this year, with a transfer price of 400 million yuan. In addition, Molin shares did not disclose other income items.

In Wolong Real Estate's "Trading Plan", the above-mentioned counterparty information of Molin shares did not disclose and explain. The reporter learned from the industrial and commercial information system that the shareholder of Xizang Taifu Cultural Media Company is Shanghai Zhiren Cultural Media Company Limited (solely owned by legal person), while the legal person of Shanghai Zhiren Cultural Media Company Limited is Shanghai Hard Communication Network Technology Company Limited (solely owned by legal person), and the corporate legal person of Shanghai Hard Communication Network Technology Limited is Sanqi Huentertainment (Shanghai) Technology Co., Ltd.; Sanqi Huentertainment shareholder Fang is also one of the shareholders of Molin shares-Wuhu Shunrong Sanqi Huentertainment Network Technology Limited.

Judging from these dazzling equity relationships, in fact, Molin shares have achieved continuous high growth by selling subsidiaries in the "circle of friends".

In the trading plan, Molin shares explained the sharp decline in net profit deducted from non-profit, stating that factors such as the gradual decline in the flow of existing high-quality games, the small number of new online games, and the fact that operators 'resource allocation is more inclined to self-developed games have also affected The net profit of the target company has an adverse impact.

Molin Co., Ltd. stated that the R & D expenses on the research projects have greatly affected the operating results of the target company, but Molin Co., Ltd. did not disclose the proportion of R & D expenses in operating income. In fact, a considerable proportion of Molin shares 'cash lies in banks and wealth management products. According to the main assets of Molin shares, 120 million yuan in bank deposits, 410 million yuan in short-term wealth management products, and 120 million yuan in available-for-sale equity instruments and long-term wealth management products.

Regarding this high-premium acquisition, many investors in Wolong Real Estate Stock Bar strongly questioned the comparison between Molin Games 'performance commitment and past performance. Some investors asked: "Mo Lin started to lay off employees last year and was unable to attend the Star Glory 360 Conference for two consecutive years. In 2015, Mo Lin Games stopped making money and declined almost overnight. This year's net profit from gambling was 360 million yuan. How to make up? It's unbelievable? Can Molin's existing web games earn 50,000 yuan a month?"

Ma Yajun, secretary of Wolong Real Estate, said in an interview with reporters that before deciding to merge, listed companies had sufficient research on the web game market. Investors 'doubts are mainly based on Molin's previous performance, because the life cycle of page games is relatively short, and Molin's lack of new games has been launched since 2015, resulting in poor performance. "But what we see is the future. Starting from the second half of this year, Molin shares will have 6 or 7 web games launched online, which will bring good profit contribution."

The reporter suggested that Molin shares earned only 55 million yuan in net non-profit deductions in 2014 during its heyday. How can we ensure high performance in the next three years? Ma Yajun said,"I am confident in Molin's game research and development capabilities. At the same time, Molin holds equity in many game companies and is optimistic about the future growth space."

Future development: Most of the subsidiaries of Molin Games have suffered sluggish performance.

Wolong Real Estate disclosed that Molin Games has 9 subsidiaries. They are wholly-owned subsidiaries Shenzhen Moqi, Hong Kong Molin, and Shanghai Moji; Chengdu Molong, Shenzhen Moyi, Chengdu Moling, Shenzhen Mohe, Shenzhen Sisan, and Wuhan Yuzhile, which hold 60%.

Among the nine subsidiaries, Shanghai Moji has stopped operations and entered the liquidation stage; Hong Kong Molin has not actually operated since its establishment.

Only Chengdu Molong and Shenzhen Mohe achieved profits. The former had a net profit of 3.53 million yuan in 2015 and a net profit of 16.3 million yuan in the first quarter of 2016. However, operating income has dropped from 107 million yuan in 2014 to 50.24 million yuan in 2015. Shenzhen Mohe's revenue in 2015 and the first quarter of 2016 were 39.08 million yuan and 15.6 million yuan respectively, and achieved net profits of 390,000 yuan and 830,000 yuan respectively. The net profit contribution capacity is extremely small.

In addition, five subsidiaries are in a state of loss, and the loss far exceeds the performance contribution of profitable subsidiaries. The financial report shows that Shenzhen Moqi achieved net profits of-11.8852 million yuan and-3.73 million yuan respectively in 2015 and the first quarter of 2016; Shenzhen Moqi achieved net profits of-24.27 million yuan and-2.8 million yuan respectively in the same period; Chengdu Moling achieved net profits of-6.38 million yuan and-2.98 million yuan respectively in the same period; Wuhan Yuzhile achieved net profits of-4.08 million yuan and-1.16 million yuan respectively in the same period; Shenzhen Sanjian achieved net profits of-760,000 yuan and-1.02 million yuan respectively during the same period. The owner's equity of the five subsidiaries is negative, with a cumulative sum of-107 million yuan.

At the same time, compared with the flow of water that often exceeds 100 million yuan, the profitability of many games that the company has mainly disclosed is not optimistic.

Taking Shenzhen Moqi, which has suffered serious losses, as an example, Molin disclosed that the company's "Unparalleled" game was officially released in the mainland of China in March 2014 and exported to China Taiwan and three Southeast Asian countries. In June 2014, the sales volume exceeded 100 million yuan, with the highest monthly sales volume in China being 104 million yuan. Another game,"Battle of the Dragon Three Kingdoms", was officially launched in October 2012, with a record of 51 million yuan in a single month in the country. However, Shenzhen Moqi only achieved a net profit of 5.64 million yuan in 2014, and both suffered losses in Q1 of 2015 and 2016, which shows the short life cycle of the web game. In the absence of new games released in 2015 and 2016, it has been difficult for old games to bring net profit growth.

According to the classification of Molin's revenue sources, the vast majority of revenue comes from web game products. In 2014, web games accounted for more than 95%, in 2015, web games accounted for 81%, and in the first quarter of 2016, web games accounted for more than 97%.

The overall growth rate of the game industry has slowed down, and web games are the first part. In 2015, the actual sales revenue of my country's game market reached 140.7 billion yuan, a year-on-year increase of 22.9%. Among the industry segments, the actual domestic sales revenue of the page game market in 2015 was 21.96 billion yuan, a year-on-year increase of 8.3%. The decline in industry growth was more obvious. In 2015, the proportion of web games in the overall size of the online game market dropped from 18.66% to approximately 16.32%.

At the same time, unlike Tencent, Netease, and Shanda, which have won half of the mobile game and mobile game markets, the web game market is relatively scattered. The "2016 China Web Game Market Annual Comprehensive Report" released by Analysys think tank shows that in 2015, Molin shares 'web game market share is 5.9%.

A senior executive from a game company in Shenzhen analyzed to reporters that the Molin game company led by Chen Mo is good at capturing the psychology of game players in the web game market. Basically, they are all ARPG games, which are typical of web games that compress their life cycles. A model to quickly gain a lot of revenue. However, the overall market for web games is declining. Mo Lin is very slow in the layout of mobile games and end games, and there are no games on web games that can bring sustainable income.

Who is the winner: Eight institutions invest a floating profit of 50% a year

. In the overall downward trend of web games, Molin's main business, which has failed to achieve results in transforming mobile games and end-games, is likely to continue to decline, and its hands hold multiple pending equity investment in the game company has become the most imaginative part of this acquisition. The "Trading Plan" disclosed that Molin currently holds 30% of the shares of game company Shenzhen Moyu, 40% of Shenzhen Ruiyou, 20% of Chengdu Xinghai, 10% of Beijing Chujian, and holds 25% of Shanghai Xiyou, where Wang Sicong is also a shareholder. With the pursuit of game companies by PE institutions and listed companies 'M & A funds, the above-mentioned game companies continue to launch in the secondary market or are still expected to achieve high premium sales.

Chen Mo, chairman of Molin Co., Ltd., once expressed in a public speech that he hoped that Molin Co., Ltd. would achieve a turnover of 4 billion yuan in 2015. However, it encountered a sharp decline in revenue in 2015. Whether Molin Co., Ltd. can make a comeback in its main business in the future? The declining web game market is full of variables. But by selling Molin shares to Wolong Real Estate, Chen Mo and PE investors will achieve huge returns in a short period of time.

According to May 18, 2015, Molin Limited was changed to a joint-stock company. Molin Shares converted 100 million yuan of the net assets on the book into 100 million shares of Molin Shares, with a par value of 1 yuan per share and a market value of 100 million yuan. In July 2015, Molin Co., Ltd. increased its capital for the first time, introducing eight investors: Sanqi Mutual Entertainment, Tongchuang Jincheng, Deli Co., Ltd., Junrun Investment, Nanhai Growth, Southern Capital, Hengtai Huasheng, and Jinshi Haolui. After this round of financing, the overall valuation of Molin Co., Ltd. is 3 billion yuan.

If Wolong Real Estate's merger is successfully passed, based on the market value of Molin shares of 4.5 billion yuan, the book assets invested by 8 institutions or listed companies will have a floating profit of 50% in just one year.

In this merger, Chen Mo received 1.625 billion yuan in cash and 214 million shares of expanded Wolong Real Estate shares. He may become the second largest shareholder of Wolong Real Estate. In July 2015, he joined the PE institutions and listed companies of Molin Co., Ltd. The lifting of the ban will be ushered in one year later, and Shunrong Sanqi, one of the shareholders of Molin Co., Ltd., will withdraw in cash.

Editor: Nancy