XD Inc. Global Offering

Key insights

6 takeaways

01
XD Inc. is launching a global offering of 63,600,000 shares at an indicative price range of HK$11.10 to HK$15.80, targeting a December 12, 2019, listing on the Hong Kong Stock Exchange.See it on page 2
02
The company operates a dual-model business combining game development with the TapTap distribution platform, which reached 19.2 million monthly active users and 165.1 million cumulative registered players by September 2019.See it on page 153
03
Financial performance shows strong momentum, with 2018 revenue of RMB 1.89 billion and a net profit of RMB 267.5 million recorded in the first five months of 2019.See it on page 286
04
The company utilizes contractual arrangements to circumvent Chinese foreign investment restrictions in the online publishing sector, posing potential risks regarding the enforceability of these structures.See it on page 230
05
Operational risks include a heavy reliance on a limited number of popular titles, such as Ragnarok M, and exposure to the evolving PRC regulatory landscape regarding game approval quotas and anti-addiction measures.See it on page 39
06
Proceeds from the offering are earmarked for game development, platform expansion, and strategic acquisitions, supported by cornerstone investments from major industry players.See it on page 327

Summary

XD Inc. is a China-based mobile game developer and operator that manages TapTap, a prominent mobile game community and distribution platform. The company is launching a global offering of 63,600,000 shares, with an indicative price range of HK$11.10 to HK$15.80 per share, targeting a listing on the Hong Kong Stock Exchange on December 12, 2019. The primary thesis of this offering is to leverage the synergy between the company’s diverse portfolio of self-developed and licensed games and the TapTap platform to drive long-term growth, with net proceeds earmarked for game development, platform expansion, and strategic acquisitions.

The company has demonstrated robust financial performance, with revenue reaching RMB 1.89 billion in 2018 and net profit rising to RMB 267.5 million for the first five months of 2019. This growth is supported by a large user base, with 165.1 million cumulative registered players and 19.2 million monthly active users as of September 2019. The business model benefits from a shift toward higher-margin information services and net-basis revenue recognition for key titles like Ragnarok M. To navigate strict Chinese foreign investment restrictions in the online publishing sector, the company utilizes contractual arrangements to maintain effective control over its PRC-based consolidated affiliated entities.

Operational and regulatory risks remain significant, including heavy reliance on a limited number of popular titles, intense market competition, and the evolving PRC legal landscape regarding anti-addiction measures and game approval quotas. Furthermore, the company faces potential challenges related to data privacy compliance, cybersecurity, and the enforceability of its contractual structures. Despite these risks, the company maintains a strong liquidity position and has secured cornerstone investments from major industry players, signaling confidence in its strategy to expand its global footprint and enhance its technical infrastructure.