Kunlun Wanwei responded to an inquiry from the Shenzhen Stock Exchange and the explosion of entertainment performance due to high DAU and high payment rate

because of an inquiry from the Shenzhen Stock Exchange, Kunlun Wanwei replied to the inquiry letter 10 days after announcing the news of the acquisition of 1.02 billion yuan for mutual entertainment. respond to questions such as the legal compliance of the acquired target products, the reasons for the performance outbreak, and the core team.

original title: Kunlun Wanwei replied to the exchange's inquiry that nearly half of the acquisition funds were borrowed

because of inquiries from the Shenzhen Stock Exchange, 10 days after the announcement of 1.02 billion yuan of acquisition and mutual entertainment, Kunlun Wanwei replied to this inquiry letter. Respond to all the questions, including the legal compliance of the target products, the reasons for the performance outbreak, and the core team.

Kunlun Wanwei's acquisition of Xiulai Mutual Entertainment, which was established in 2016, operates several mahjong games, such as "leisure mahjong" and "panda Sichuan mahjong". The revenue of its games has reached 450 million yuan in just 8 months, with an average monthly flow of more than 50 million yuan. Such a rapid growth rate ushered in a lot of questions, and the main questions related to whether the subject of the acquisition involved gambling and pyramid schemes and other issues of principle.

in the reply, Kunlun Wanwei denied it. The reply shows that the game mode of "free mahjong" is in line with the provisions of China's current law, and the mode of operation and profit-making means do not violate the criminal law. On the other hand, the game uses the Internet to virtualize the real chess and card pavilion, during which there is physical isolation between offline payment and online games, and there is an obvious difference between house card agency mode and pyramid selling, so it does not involve pyramid selling.

in explaining the reasons for the rapid outbreak of performance in the second half of the year, Kunlun Wanwei said it stems from various forms of promotion of products such as "leisure mahjong" and "panda Sichuan mahjong" in July this year. According to the data, the market promotion fees for free mahjong in June, July and August are 170000 yuan, 1.53 million yuan and 410000 yuan respectively, with income accounting for 3.46%, 14.1% and 0.55%, respectively. It is this publicity fee that directly led to a sharp increase in income. The reply shows that from July to September 2016, the total number of active users of "leisure mahjong", "panda Sichuan mahjong" and "leisure mahjong in Guangdong" reached 10.8621 million, and the total number of paying players reached 7.7265 million, with a payment rate of 71.13%. From October to November, the above figures were raised to 17.9154 million and 15.3033 million respectively in less time, and the payment rate was raised to 85.42%.

but this reply letter also reveals the problems encountered by the subject matter of M & A. First of all, the subject matter of mergers and acquisitions significantly increases the risks behind users. According to the data, the performance outbreak of idle entertainment mainly began in August, with monthly income of 74 million yuan, 120 million yuan, 128 million yuan and 116 million yuan respectively from August to November, with month-on-month growth rates of 590%, 62%, 7% and-9%, respectively. It can be found that the month-on-month growth rate of the monthly income of M & A targets dropped sharply in September and October, and there has been a negative growth in November.

from a strategic point of view, the success of idle touting and mutual entertainment mainly lies in stepping on the leisure chess and card competitive market in cities and towns below the third line and in rural areas, thus reaching a monthly flow of over 100 million. According to the data of active users and paying players, the number of active users from October to November is about 6.2 million and the number of paying players is about 5.4 million. According to the per capita payment, the amount of money per person spent on games per month is about 29 yuan. Compared with the per capita expenditure of palm games and Tang games of about 577-1000 yuan, it is obvious that there are differences in the product positioning of idle touting and mutual entertainment.

in addition, the source of funding for the acquisition is also mentioned in the inquiry letter. According to the plan for the use of Kunlun Wanwei funds, 580 million yuan of the funds for this acquisition exchange will be paid with its own funds, and the remaining 440 million yuan will be raised by bank loans and external loans. The borrowing rate is 4.785% Mel 10% annualized, and the annual interest expense is expected to be 35 million yuan. As of the third quarterly report, Kunlun Wanwei has only 500 million yuan in paper cash, which means that the acquisition will make the company's paper cash urgent. According to the acquisition plan, Kunlun Wanwei will have to pay 500 million yuan at the end of 2016 according to the 51% shareholding ratio. Although the company's application for a non-public offering of A shares has been approved by the CSRC, it is less likely to issue before December 31. Therefore, it can be confirmed that the cash situation of Kunlun Wanwei in the 2016 annual report will be urgent.

in addition, the reply also announced the curriculum vitae of the executives of idleness and mutual entertainment. It can be found that 15 of the company's 16 executives are post-80s, of which the chairman, Tan Xing, was born in 1988.

Edit: yvette