禅游科技(02660) - 2024 - 中期财报

Company Information Company Information This section provides essential company details, including board and committee members, key contacts, and registration information - Board members include Mr. Ye Sheng (Chairman and CEO), Mr. Yang Min (Vice Chairman and CTO), Ms. Xiong Mi, Ms. Tan Si Hui (appointed on March 21, 2024) as executive directors, and Mr. Jin Shu Hui, Mr. Mao Zhong Hua, Mr. Yang Yi as independent non-executive directors[4] - The Audit Committee is chaired by Mr. Jin Shu Hui, the Remuneration Committee by Mr. Yang Yi, and the Nomination Committee by Mr. Ye Sheng[4] - The company's auditor is Ernst & Young, and the Hong Kong share registrar is Tricor Investor Services Limited[4][5] - The company's stock code is 2660, and its website is www.zen-game.com[5](index=5&type=chunk) Financial Highlights Financial Highlights The company reported significant declines in revenue, gross profit, and net profit for H1 2024, with narrowed margins Financial Highlights for the Six Months Ended June 30, 2024 (RMB in thousands) | Indicator | 2024 (Unaudited) | 2023 (Unaudited) | Year-on-Year Change % | | :--- | :--- | :--- | :--- | | Revenue | 934,315 | 1,017,834 | (8.2) | | Gross Profit | 492,901 | 635,714 | (22.5) | | Gross Margin (%) | 52.8 | 62.5 | — | | Profit for the Period | 309,844 | 404,261 | (23.4) | | Profit Margin (%) | 33.2 | 39.7 | — | | Non-HKFRS Adjusted Net Profit | 324,733 | 413,154 | (21.4) | | Earnings Per Share (RMB) | 0.31 | 0.41 | (24.4) | - Non-HKFRS adjusted net profit excludes share-based compensation[7] Management Discussion and Analysis Business Review H1 2024 saw a stable Chinese gaming market under normalized regulation, but the Group's revenue and net profit declined due to reduced paying users and ARPPU, despite innovation and AIGC adoption - The Chinese gaming market is stable and improving, with normalized regulation, a trend towards high-quality and refined games, and increased focus on content value, cultural essence, and overseas expansion[8] - The Group focuses on core products, strengthens in-house R&D and operations, and integrates AIGC technology to enhance intelligent and refined operational efficiency[8] - The flagship product, 'Zhi Jian Sichuan Mahjong,' achieved a best ranking of third on China's iOS card game bestseller list, with two new casual games launched domestically and overseas in H1[10] - The Group strictly implements real-name authentication and anti-addiction measures, continuously improves its minor protection system, sets reasonable consumption limits for adults, and enhances user information security[10] Key Operating Highlights (in thousands) | Indicator | For the Six Months Ended June 30, 2024 | For the Six Months Ended June 30, 2023 | For the Year Ended December 31, 2023 | | :--- | :--- | :--- | :--- | | Monthly Active Users | 25,207 | 25,068 | 25,065 | | Daily Active Users | 4,468 | 4,404 | 4,347 | | Monthly Paying Users (Virtual Items) | 525 | 575 | 553 | | ARPPU for Virtual Items (RMB) | 271 | 289 | 304 | - Due to a decrease in paying users for card games and a decline in ARPPU, the Group's overall revenue decreased by 8.2% year-on-year to RMB 934.3 million[10] - Cost of sales increased by 15.5% year-on-year to RMB 441.4 million, primarily due to higher information service costs[10] - Net profit decreased by 23.4% year-on-year to RMB 309.8 million, while adjusted net profit decreased by 21.4% to RMB 324.7 million[10] Future Outlook The Group's H2 2024 strategy focuses on premium games, talent, global expansion, industry investments, and advanced technology for growth - Develop long-lifecycle premium games, enhancing quality and efficiency to optimize user experience[11] - Emphasize talent development and innovative incentive mechanisms, continuously strengthening operational management[11] - Intensify efforts to expand into overseas markets, fostering future growth engines[11] - Increase investment in industry peers to expand R&D capabilities and synergistic effects[11] - Embrace cutting-edge industry technologies to empower high-quality development of core businesses[11] Financial Review This section reviews H1 2024 financial performance, highlighting an 8.2% revenue decline, increased cost of sales, reduced gross profit, and a substantial drop in net profit, despite lower operating expenses Revenue H1 2024 revenue declined by 8.2% to RMB 934.3 million, driven by reduced paying users and ARPPU in card games and a downturn in in-game information services Revenue Breakdown by Business Model (RMB in thousands) | Business Model | 2024 (Unaudited) | % | 2023 (Unaudited) | % | Year-on-Year Change % | | :--- | :--- | :--- | :--- | :--- | :--- | | Sales of virtual items | 894,395 | 95.7 | 963,923 | 94.7 | (7.2) | | — Self-developed games | 889,134 | 95.2 | 960,029 | 94.3 | (7.4) | | — Third-party games | 5,261 | 0.5 | 3,894 | 0.4 | 35.1 | | In-game information services | 39,920 | 4.3 | 53,911 | 5.3 | (26.0) | | Total | 934,315 | 100.0 | 1,017,834 | 100.0 | (8.2) | Revenue Breakdown by Game Category (RMB in thousands) | Game Category | 2024 (Unaudited) | % | 2023 (Unaudited) | % | Year-on-Year Change % | | :--- | :--- | :--- | :--- | :--- | :--- | | Card and board games | 895,074 | 95.8 | 999,513 | 98.2 | (10.4) | | Other games | 39,241 | 4.2 | 18,321 | 1.8 | 114.2 | | Total | 934,315 | 100.0 | 1,017,834 | 100.0 | (8.2) | - Revenue from card and board games decreased by 10.4%, while revenue from other games increased by 114.2%, primarily due to higher casual game revenue[15] Cost of Sales Cost of sales rose by 15.5% to RMB 441.4 million, mainly due to a substantial increase in information service costs Cost of Sales Breakdown by Nature (RMB in thousands) | Cost Category | 2024 (Unaudited) | 2023 (Unaudited) | Year-on-Year Change % | | :--- | :--- | :--- | :--- | | Channel costs | 264,142 | 278,109 | (5.0) | | Information service costs | 89,406 | 2,912 | 2,970.3 | | New media costs | 78,395 | 91,721 | (14.5) | | Others | 9,471 | 9,378 | 1.0 | | Total | 441,414 | 382,120 | 15.5 | - Information service costs surged by 2,970.3% year-on-year, being the primary driver of increased cost of sales[16] Gross Profit and Gross Margin Gross profit decreased by 22.5% to RMB 492.9 million, with gross margin falling to 52.8%, impacted by lower revenue and higher cost of sales Gross Profit and Gross Margin by Business Model (RMB in thousands) | Business Model | 2024 Gross Profit (Unaudited) | Gross Margin % | 2023 Gross Profit (Unaudited) | Gross Margin % | | :--- | :--- | :--- | :--- | :--- | | Sales of virtual items | 456,455 | 51.0 | 584,715 | 60.7 | | — Self-developed games | 451,194 | 50.7 | 580,821 | 60.5 | | — Third-party games | 5,261 | 100 | 3,894 | 100.0 | | In-game information services | 36,446 | 91.3 | 50,999 | 94.6 | | Total | 492,901 | 52.8 | 635,714 | 62.5 | - The gross margin for virtual item sales from self-developed games decreased from 60.5% to 50.7%[18] Other Income Other income increased by 1.8% to RMB 47.2 million, mainly due to higher bank interest income - Other income increased by 1.8% from approximately RMB 46.3 million in H1 2023 to approximately RMB 47.2 million in H1 2024[19] - The increase was primarily due to higher bank interest income[19] Selling and Distribution Expenses Selling and distribution expenses decreased by 43.7% to RMB 41.3 million, primarily due to lower distribution costs and sales staff salaries - Selling and distribution expenses decreased from approximately RMB 73.4 million in H1 2023 to approximately RMB 41.3 million in H1 2024[20] - The decrease was primarily due to reduced distribution expenses and lower salaries for sales personnel[20] Administrative Expenses Administrative expenses decreased by 7.4% to RMB 56.2 million, primarily due to lower management salaries - Administrative expenses decreased from approximately RMB 60.7 million in H1 2023 to approximately RMB 56.2 million in H1 2024[21] - The decrease was primarily due to reduced management personnel salaries[21] Research and Development Expenses R&D expenses decreased by 9.0% to RMB 67.2 million, mainly due to lower R&D staff salaries - Research and development expenses decreased from approximately RMB 73.8 million in H1 2023 to approximately RMB 67.2 million in H1 2024[22] - The decrease was primarily due to reduced R&D personnel salaries[22] Other Expenses Other expenses decreased by 46.4% to RMB 5.4 million, mainly due to reduced impairment of other receivables - Other expenses decreased from approximately RMB 10.1 million in H1 2023 to approximately RMB 5.4 million in H1 2024[23] - The decrease was primarily due to reduced impairment losses on other receivables[23] Finance Costs Finance costs decreased by 62.5% to RMB 0.2 million - Finance costs decreased from approximately RMB 0.4 million in H1 2023 to approximately RMB 0.2 million in H1 2024[24] Income Tax Expense Income tax expense slightly decreased due to lower profit before tax and increased withholding tax on intercompany dividends - Income tax expense decreased from approximately RMB 57.7 million in H1 2023 to approximately RMB 56.7 million in H1 2024[25] - The decrease was primarily due to the combined effect of lower profit before tax and increased withholding tax on dividends to be paid by the Group's Chinese subsidiaries to its Hong Kong subsidiaries[25] Profit for the Period Net profit for the period decreased by 23.4% to RMB 309.8 million, mainly due to lower revenue from virtual items and in-game information services - The Group's net profit for the six months ended June 30, 2024, was approximately RMB 309.8 million, a decrease of approximately 23.4% compared to RMB 404.3 million in the same period of 2023[26] - The decrease was primarily due to reduced revenue from the Group's virtual item sales and in-game information services[26] Non-HKFRS Measure — Adjusted Net Profit Adjusted net profit, excluding share-based compensation, decreased by 21.4% to RMB 324.7 million Adjusted Net Profit Calculation (RMB in thousands) | Indicator | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Profit for the period | 309,844 | 404,261 | | Add: Share-based compensation | 14,889 | 8,893 | | Adjusted net profit | 324,733 | 413,154 | - Adjusted net profit (adjusted for share-based compensation) was approximately RMB 324.7 million, a 21.4% decrease from approximately RMB 413.2 million in the same period of 2023[27] Liquidity and Capital Resources Despite reduced cash, the Group maintains strong liquidity with high current ratio, no borrowings, and zero debt-to-capital ratio - Total bank balances and cash decreased from RMB 1.9 billion as of December 31, 2023, to RMB 1.7 billion as of June 30, 2024, primarily due to funds allocated to fixed deposits with maturities over one year[29] - As of June 30, 2024, current assets were approximately RMB 2,093.7 million, and current liabilities were approximately RMB 408.3 million[30] - The current ratio (current assets to current liabilities) was 5.1, compared to 7.5 as of December 31, 2023[30] - The Group had no borrowings as of June 30, 2024, resulting in a zero debt-to-capital ratio[30] Capital Expenditure H1 2024 capital expenditure was RMB 11.2 million, mainly for office premises investments and purchases - For the six months ended June 30, 2024, the Group's capital expenditure was approximately RMB 11.2 million[31] - This was primarily for investments and the purchase of office premises[31] Contingent Liabilities As of June 30, 2024, the Group reported no significant contingent liabilities - The Group had no significant contingent liabilities as of June 30, 2024[31] Pledged Assets As of June 30, 2024, the Group had no pledged assets - As of June 30, 2024, the Group had not pledged any assets[32] Future Plans for Material Investments and Capital Assets The Group has no current plans for other material investments or capital assets - The Group has no other plans for material investments and capital assets[32] Material Investments, Acquisitions and Disposals H1 2024 saw no material investments, acquisitions, or disposals of subsidiaries, associates, or joint ventures, nor any authorized plans - For the six months ended June 30, 2024, the Group held no material investments, nor did it undertake any material acquisitions or disposals of subsidiaries, associates, or joint ventures, and there were no board-authorized plans for other material investments or additions to capital assets[32] Foreign Exchange Risk Management The Group faces foreign exchange risk from USD and HKD cash holdings, despite RMB functional currency; no hedging policy is in place, but management monitors the situation - The Group's functional currency is RMB, with most income and expenses denominated in RMB[33] - The Group also holds certain cash and bank balances denominated in USD and HKD, exposing it to foreign exchange risk[33] - The Group currently has no foreign currency hedging policy, and management will continue to monitor and consider prudent measures[33] Corporate Governance and Other Information Events After Reporting Period No significant events occurred for the Group from June 30, 2024, to the interim report date - No significant events have occurred for the Group from June 30, 2024, up to the date of this interim report[34] Interim Dividend The Board does not recommend an interim dividend for H1 2024; the 2023 final dividend was paid on July 4, 2024 - The Board does not recommend paying any interim dividend for the six months ended June 30, 2024[34] - The final dividend of HKD 0.23 per share for the year ended December 31, 2023, was paid on July 4, 2024[34] Corporate Governance Code The company adopted the Corporate Governance Code and complied with its provisions during the period, except for the combined Chairman and CEO role - The Company has adopted the code provisions of the Corporate Governance Code set out in Appendix C1 of the Listing Rules as its own code of corporate governance practices[35] - Except for the deviation from code provision C.2.1 of the Corporate Governance Code (where the roles of Chairman and Chief Executive Officer are combined), the Company has complied with the relevant code provisions of the Corporate Governance Code for the six months ended June 30, 2024[35] - The Board believes that the current arrangement is beneficial and in the best interests of the Company and its shareholders as a whole, given that the Board also has five other experienced and high-caliber individuals providing advice[35] Standard Code for Securities Transactions by Directors of Listed Issuers The company adopted the Standard Code for directors' securities transactions, with all directors confirming compliance during the period - The Company has adopted the Standard Code set out in Appendix C3 of the Listing Rules as the code of conduct for directors' securities transactions[37] - Following specific enquiries with all directors, all directors confirmed that they have complied with the required standards set out in the Standard Code for the six months ended June 30, 2024[37] Audit Committee The Audit Committee, chaired by Mr. Jin Shu Hui, reviewed and confirmed the interim results' compliance with accounting principles and disclosures, with an Ernst & Young review - The Audit Committee comprises Mr. Jin Shu Hui (Chairman), Mr. Mao Zhong Hua, and Mr. Yang Yi, all of whom are independent non-executive directors[38] - The Audit Committee has reviewed the Company's unaudited condensed consolidated interim results for the six months ended June 30, 2024, and confirmed compliance with applicable accounting principles, standards, and requirements, with adequate disclosures made[38] - The interim results have been reviewed by the Company's auditor, Ernst & Young, in accordance with Hong Kong Standard on Review Engagements 2410[38] Purchase, Sale or Redemption of the Company's Listed Securities Neither the company nor its subsidiaries purchased, sold, or redeemed any listed securities in H1 2024, and no treasury shares were held - For the six months ended June 30, 2024, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities[39] - As of June 30, 2024, the Group did not hold any treasury shares[39] Changes in Directors' Information Directors Mr. Ye Sheng and Mr. Yang Min had changes in their directorships, including new executive roles at Zengame Interactive (Singapore) Pte. Ltd. and Mr. Ye Sheng's resignation as General Manager of Shenzhen Tiantianlaiwan Technology Co. Ltd - Mr. Ye Sheng was appointed as an executive director of Zengame Interactive (Singapore) Pte. Ltd. effective May 30, 2024, and ceased to be the General Manager of Shenzhen Tiantianlaiwan Technology Co. Ltd. on the same date[36] - Mr. Yang Min was appointed as an executive director of Zengame Interactive (Singapore) Pte. Ltd. effective May 30, 2024[36] Structured Contracts The Board confirmed material compliance with structured contracts, despite regulatory uncertainties from the Foreign Investment Law, and will monitor legal developments - For the six months ended June 30, 2024, the Board reviewed the overall performance of the structured contracts and concluded that the Group had complied with the structured contracts in all material aspects[41] - Following the effectiveness of the Foreign Investment Law, uncertainties remain regarding whether the structured contracts will be included in future foreign investment regulatory scope and the supervisory framework[41] - As of the date of this interim report, the Company's business has not been affected by the Foreign Investment Law, and the Company will closely monitor the developments of relevant laws and regulations[41] Employee Remuneration and Relationship As of June 30, 2024, the Group had 501 employees, offering social security and market-based remuneration, maintaining good relations with no major labor disputes - As of June 30, 2024, the Group had approximately 501 employees (537 as of December 31, 2023)[42] - The Group participates in various local government-managed employee social security schemes for its employees, including housing, pension, medical insurance, maternity insurance, and unemployment insurance[42] - The Group believes it maintains good working relationships with its employees, with no significant labor disputes occurring during the six months ended June 30, 2024[42] Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures As of June 30, 2024, key directors Mr. Ye Sheng, Mr. Yang Min, and Ms. Xiong Mi held significant share interests in the Company and Zengame Shenzhen through controlled corporations and beneficially owned options and awards Directors' Long Positions in the Company (as of June 30, 2024) | Name | Capacity/Nature of Interest | Number of Shares | Approximate % of Company's Equity | | :--- | :--- | :--- | :--- | | Mr. Ye Sheng | Interest of controlled corporation | 231,712,000 | 22.46% | | | Beneficial owner | 7,650,000 | 0.74% | | Mr. Yang Min | Interest of controlled corporation | 197,604,100 | 19.15% | | | Beneficial owner | 7,650,000 | 0.74% | | Ms. Xiong Mi | Beneficial owner | 3,154,021 | 0.31% | Directors' Long Positions in Associated Corporation Zengame Shenzhen (as of June 30, 2024) | Name | Capacity/Nature of Interest | Number of Shares | Approximate % of Group's Equity | | :--- | :--- | :--- | :--- | | Mr. Ye Sheng | Interest of controlled corporation | 13,326,923 | 24.68% | | Mr. Yang Min | Interest of controlled corporation | 11,695,054 | 21.65% | Substantial Shareholders' Interests and Short Positions in Shares and Underlying Shares As of June 30, 2024, key entities and their associates were substantial shareholders, holding significant share interests in the Company Substantial Shareholders' Long Positions in the Company (as of June 30, 2024) | Name/Designation | Capacity/Nature of Interest | Number of Shares | Approximate % of Company's Equity | | :--- | :--- | :--- | :--- | | Sky-zen Capital Limited | Beneficial owner | 231,712,000 | 22.46% | | Ms. Xie Yingying | Interest of spouse | 239,362,000 | 23.20% | | J&L Y Limited | Beneficial owner | 197,604,100 | 19.15% | | Ms. Jiang Qian | Interest of spouse | 205,254,100 | 19.89% | | D Fun Limited | Beneficial owner | 160,143,300 | 15.52% | | Ms. Zhang Wei | Settlor of discretionary trust | 160,143,300 | 15.52% | | Mr. Zeng Liqing | Interest of spouse | 160,143,300 | 15.52% | | Bonaza Limited | Nominee for another person | 160,143,300 | 15.52% | | Infiniti Trust (Hong Kong) Limited | Trustee | 160,143,300 | 15.52% | | Playa Technology Limited | Beneficial owner | 90,860,920 | 8.81% | | Mr. Bao Zhoujia | Settlor of discretionary trust | 90,860,920 | 8.81% | | BAO TRUST | Nominee for another person | 90,860,920 | 8.81% | Restricted Share Unit Scheme The 2018 Restricted Share Unit Scheme was terminated on April 19, 2024, with all units granted and vested by December 31, 2021, leaving no outstanding units - The Group adopted the Restricted Share Unit Scheme on October 9, 2018, to reward directors, senior management, and employees[52] - On April 19, 2024, the Board resolved to terminate the Restricted Share Unit Scheme[52] - As of the date of this interim report, all restricted share units were granted and vested to eligible participants before December 31, 2021; consequently, there are no restricted share units available for grant, exercise, cancellation, lapse, or expiry, and no shares available for issue under the scheme[52] Share Option Scheme The 2019 Share Option Scheme was terminated on May 31, 2024, but 8,935,000 unexercised options remain valid as of June 30, 2024 - The Company adopted the Share Option Scheme on March 28, 2019, to incentivize eligible persons[53] - On May 31, 2024, shareholders approved the termination of the Share Option Scheme by ordinary resolution at the Company's annual general meeting[53] - Unexercised share options granted before termination will remain valid and exercisable in accordance with the terms of grant and the original Share Option Scheme rules[53] Changes in Number of Shares Under Share Option Scheme (for the six months ended June 30, 2024) | Grantee Name | Grant Date | Exercise Price per Share (HKD) | Closing Price Immediately Before Grant Date (HKD) | Performance Target | Unexercised as of Jan 1, 2024 | Granted | Exercised | Expired/Lapsed/Cancelled | Unexercised as of June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Directors | | | | | | | | | | | Mr. Ye Sheng | June 3, 2021 | 1.29 | 1.24 | Not applicable | 1,000,000 | — | 500,000 | — | 500,000 | | Mr. Yang Min | June 3, 2021 | 1.29 | 1.24 | Not applicable | 1,000,000 | — | 500,000 | — | 500,000 | | Ms. Xiong Mi | June 3, 2021 | 1.29 | 1.24 | Not applicable | 200,000 | — | — | — | 200,000 | | Employees | | | | | | | | | | | 101 Employees of the Group | June 3, 2021 | 1.29 | 1.24 | Not applicable | 7,990,750 | — | 183,750 | 72,000 | 7,735,000 | | Total | | | | | 10,190,750 | — | 1,183,750 | 72,000 | 8,935,000 | - For the six months ended June 30, 2024, 1,183,750 share options were exercised, and 72,000 share options lapsed[54][55] 2021 Share Award Scheme The 2021 Share Award Scheme, adopted for talent retention, will use existing shares for awards; as of June 30, 2024, 34,611,000 shares were granted, with 219,000 lapsed - The Company adopted the 2021 Share Award Scheme on June 24, 2021, to recognize contributions, encourage, and retain selected participants[57] - To comply with the transitional arrangements for existing share schemes under the new Chapter 17, any awards granted under the 2021 Share Award Scheme shall be satisfied by existing shares purchased by Converge Trustees Limited, rather than by allotment and issue of new shares[58] - As of June 30, 2024, a total of 34,611,000 shares have been granted under the Share Award Scheme[58] Details of Unvested Awards Under 2021 Share Award Scheme (as of June 30, 2024) | Grantee Name | Grant Date | Purchase Price | Performance Target | Closing Share Price Immediately Before Grant Date (HKD) | Fair Value of Awards (1) (HKD million) | Unvested Awards as of Jan 1, 2024 | Granted for the six months ended June 30, 2024 | Vested for the six months ended June 30, 2024 | Weighted Average Closing Share Price Immediately Before Vesting Date (HKD) | Expired/Lapsed/Cancelled for the six months ended June 30, 2024 | Unvested as of June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Directors | | | | | | | | | | | | | Mr. Ye Sheng | Oct 6, 2022 | — | Not applicable | 1.30 | 6.0 | 2,250,000 | — | — | — | — | 2,250,000 | | | Dec 4, 2023 | — | Not applicable | 4.01 | 4.5 | 1,150,000 | — | — | — | — | 1,150,000 | | Mr. Yang Min | Oct 6, 2022 | — | Not applicable | 1.30 | 6.0 | 2,250,000 | — | — | — | — | 2,250,000 | | | Dec 4, 2023 | — | Not applicable | 4.01 | 4.5 | 1,150,000 | — | — | — | — | 1,150,000 | | Ms. Xiong Mi | Oct 6, 2022 | — | Not applicable | 1.30 | 0.3 | 100,000 | — | — | — | — | 100,000 | | | Dec 4, 2023 | — | Not applicable | 4.01 | 0.2 | 53,000 | — | — | — | — | 53,000 | | Employees | | | | | | | | | | | | | 101 Employees of the Group | Oct 6, 2022 | — | Not applicable | 1.30 | 24.3 | 8,638,000 | — | — | — | 135,000 | 8,503,000 | | 122 Employees of the Group | Dec 4, 2023 | — | Not applicable | 4.01 | 18.3 | 4,665,000 | — | — | — | 84,000 | 4,581,000 | - For the six months ended June 30, 2024, a total of 219,000 shares lapsed[60] 2024 Share Scheme The 2024 Share Scheme, adopted on May 31, 2024, for employee incentives, has 87,178,867 awards available, with no grants or exercises as of June 30, 2024 - The Company adopted the 2024 Share Scheme on May 31, 2024, which is required to comply with the provisions of the new Chapter 17[61] - Awards under the 2024 Share Scheme may be in the form of share options (to be satisfied by the issue of new shares) or share awards (to be satisfied by the issue of new shares or the purchase of existing shares from a third party)[61] - As of the adoption date of the 2024 Share Scheme and the end of the six months ended June 30, 2024, 87,178,867 awards were available for grant in the form of share awards and/or share options under the 2024 Share Scheme[62] - For the six months ended June 30, 2024, no share awards or share options were granted, vested, exercised, cancelled, or lapsed under the 2024 Share Scheme[62] Independent Review Report Independent Review Report Ernst & Young reviewed the interim financial information for H1 2024, finding no material non-compliance with HKAS 34 - Ernst & Young has reviewed the Company's interim financial information for the six months ended June 30, 2024[63] - A review is substantially less in scope than an audit, and therefore no audit opinion is expressed[64] - Based on the review, nothing has come to attention that causes to believe the interim financial information is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34[65] Condensed Consolidated Interim Statement of Profit or Loss Condensed Consolidated Interim Statement of Profit or Loss H1 2024 revenue declined by 8.2% to RMB 934.3 million, cost of sales rose 15.5%, gross profit fell 22.5%, and profit for the period decreased 23.4% to RMB 309.8 million, with basic EPS at RMB 30.72 cents Condensed Consolidated Interim Statement of Profit or Loss (for the six months ended June 30, 2024, RMB in thousands) | Indicator | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Revenue | 934,315 | 1,017,834 | | Cost of sales | (441,414) | (382,120) | | Gross profit | 492,901 | 635,714 | | Other income and gains | 47,188 | 46,338 | | Selling and distribution expenses | (41,332) | (73,410) | | Administrative expenses | (56,164) | (60,690) | | Research and development costs | (67,229) | (73,840) | | Other expenses | (5,426) | (10,126) | | Finance costs | (159) | (424) | | Share of profits and losses: Joint ventures | (180) | (569) | | Share of profits and losses: Associates | (3,019) | (1,077) | | Profit before tax | 366,580 | 461,916 | | Income tax expense | (56,736) | (57,655) | | Profit for the period | 309,844 | 404,261 | | Attributable to: Owners of the parent | 309,844 | 404,845 | | Non-controlling interests | — | (584) | | Basic earnings per share (RMB cents) | 30.72 | 40.51 | | Diluted earnings per share (RMB cents) | 30.07 | 39.56 | Condensed Consolidated Interim Statement of Comprehensive Income Condensed Consolidated Interim Statement of Comprehensive Income H1 2024 profit for the period was RMB 309.8 million, with a net other comprehensive income loss of RMB 6.257 million, resulting in total comprehensive income of RMB 303.587 million Condensed Consolidated Interim Statement of Comprehensive Income (for the six months ended June 30, 2024, RMB in thousands) | Indicator | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Profit for the period | 309,844 | 404,261 | | Other comprehensive income: Exchange differences on translation of foreign operations | 3,065 | 15,251 | | Other comprehensive income: Fair value changes of equity investments designated at fair value through other comprehensive income | (9,322) | (9,788) | | Other comprehensive income for the period, net of tax | (6,257) | 5,463 | | Total comprehensive income for the period | 303,587 | 409,724 | | Attributable to: Owners of the parent | 303,587 | 410,308 | | Non-controlling interests | — | (584) | - Fair value changes in equity investments designated at fair value through other comprehensive income resulted in a loss of RMB 9,322 thousand[67] Condensed Consolidated Interim Statement of Financial Position Condensed Consolidated Interim Statement of Financial Position As of June 30, 2024, total assets less current liabilities increased to RMB 2,486.5 million, driven by higher non-current assets, while net current assets decreased due to increased current liabilities Condensed Consolidated Interim Statement of Financial Position (as of June 30, 2024, RMB in thousands) | Indicator | 2024 June 30 (Unaudited) | 2023 Dec 31 (Audited) | | :--- | :--- | :--- | | Non-current assets | | | | Property and equipment | 14,832 | 7,653 | | Right-of-use assets | 27,332 | 5,086 | | Intangible assets | 1,582 | 541 | | Investments in associates | 24,088 | 28,471 | | Investments in joint ventures | 2,744 | 4,136 | | Equity investments designated at fair value through other comprehensive income | 18,897 | 29,772 | | Long-term prepayments, deposits and other receivables | 15,516 | 20,059 | | Deferred tax assets | 6,094 | 4,551 | | Fixed deposits with original maturity over one year | 689,973 | 374,079 | | Total non-current assets | 801,058 | 474,348 | | Current assets | | | | Trade receivables | 115,753 | 168,691 | | Contract costs | 24,287 | 38,717 | | Prepayments, deposits and other receivables | 33,770 | 36,283 | | Financial assets at fair value through profit or loss | 258,469 | 15,521 | | Fixed deposits with original maturity over three months | 585,078 | 575,278 | | Cash and cash equivalents | 1,076,389 | 1,331,652 | | Total current assets | 2,093,746 | 2,166,142 | | Current liabilities | | | | Trade payables | 14,477 | 17,174 | | Contract liabilities | 69,593 | 112,468 | | Other payables and accrued expenses | 293,727 | 130,247 | | Lease liabilities | 6,096 | 3,465 | | Tax payable | 24,390 | 26,770 | | Total current liabilities | 408,283 | 290,124 | | Net current assets | 1,685,463 | 1,876,018 | | Total assets less current liabilities | 2,486,521 | 2,350,366 | | Non-current liabilities | | | | Lease liabilities | 21,348 | 1,632 | | Deferred income | 9,244 | 9,244 | | Deferred tax liabilities | 31,087 | 19,516 | | Total non-current liabilities | 61,679 | 30,392 | | Net assets | 2,424,842 | 2,319,974 | | Total equity | 2,424,842 | 2,319,974 | - Total non-current assets significantly increased from RMB 474.3 million at year-end 2023 to RMB 801.1 million, primarily due to an increase in fixed deposits with maturities over one year[68] - Total current assets slightly decreased, while total current liabilities significantly increased, leading to a reduction in net current assets[68] Condensed Consolidated Interim Statement of Changes in Equity Condensed Consolidated Interim Statement of Changes in Equity H1 2024 total equity attributable to owners increased to RMB 2,424.842 million, driven by profit for the period, despite a declared dividend, and changes from share-based payments and option exercises - Total equity attributable to owners of the parent increased from RMB 2,319,974 thousand as of December 31, 2023, to RMB 2,424,842 thousand as of June 30, 2024[69] - Profit for the period was RMB 309,844 thousand, but a 2023 annual dividend of RMB 215,055 thousand was declared[69] - Equity-settled share-based payments amounted to RMB 14,889 thousand, and shares issued upon exercise of share options amounted to RMB 1,447 thousand[69] Condensed Consolidated Interim Statement of Cash Flows Condensed Consolidated Interim Statement of Cash Flows H1 2024 saw net cash from operations at RMB 278.7 million, increased cash used in investing activities to RMB 534.3 million, and a net decrease of RMB 258.3 million in cash and cash equivalents Condensed Consolidated Interim Statement of Cash Flows (for the six months ended June 30, 2024, RMB in thousands) | Indicator | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Net cash flows from operating activities | 278,699 | 358,215 | | Net cash flows used in investing activities | (534,280) | (140,956) | | Net cash flows used in financing activities | (2,747) | (429) | | Net (decrease)/increase in cash and cash equivalents | (258,328) | 216,830 | | Cash and cash equivalents at beginning of period | 1,331,652 | 977,230 | | Effect of exchange rate changes, net | 3,065 | 15,251 | | Cash and cash equivalents at end of period | 1,076,389 | 1,209,311 | - Net cash flow used in investing activities significantly increased, primarily due to fixed deposits of RMB 2,472.9 million and purchases of financial assets at fair value through profit or loss of RMB 413.1 million[73] - Cash and cash equivalents at the end of the period amounted to RMB 1,076.389 million, a decrease from the beginning of the period[73] Notes to the Condensed Consolidated Interim Financial Information 1. Basis of Presentation The interim financial information is prepared under HKAS 34 and should be read with the 2023 annual financial statements - The condensed consolidated interim financial information for the six months ended June 30, 2024, has been prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting[75] - The condensed consolidated interim financial information does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended December 31, 2023[75] 2. Changes in Accounting Policies and Disclosures This period's financial information adopted revised HKFRS, including amendments to HKFRS 16, HKAS 1, HKAS 7, and HKFRS 7, with no significant impact on the Group's financial position or performance - The accounting policies adopted in the preparation of the condensed consolidated interim financial information are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended December 31, 2023, except for the adoption of the following revised HKFRSs for the first time in the current period[76] - The amendments to HKFRS 16 had no impact on the Group's financial position or performance as the Group has no relevant sale and leaseback transactions[76] - The 2020 and 2022 amendments to HKAS 1 had no impact on the Group's financial position or performance as the classification of liabilities remained unchanged[77] - The amendments to HKAS 7 and HKFRS 7 had no impact on the condensed consolidated interim financial information as the Group has no supplier finance arrangements[77] 3. Operating Segment Information The Group, focused on mobile game development in China, does not present separate segment information as all revenue and assets are China-based, and no single customer accounts for over 10% of revenue - The Group is principally engaged in the development and operation of mobile games[78] - As all revenue is generated in China and all long-term assets/capital expenditures are located in/derived from China, no further information on operating or geographical segments is presented[78][79] - For the six months ended June 30, 2024, no single customer accounted for 10% or more of the Group's revenue[80] 4. Revenue H1 2024 revenue, primarily from virtual item sales and in-game information services, decreased by 8.2%; performance obligations are recognized over time or at a point in time, with remaining obligations expected within one year Disaggregated Revenue Information (for the six months ended June 30, 2024, RMB in thousands) | Category | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Type of goods or services | | | | Self-developed games | 889,134 | 960,029 | | Third-party games | 5,261 | 3,894 | | In-game information services | 39,920 | 53,911 | | Total | 934,315 | 1,017,834 | | Timing of revenue recognition | | | | Services transferred at a point in time | 45,181 | 57,805 | | Services transferred over time | 889,134 | 960,029 | | Total | 934,315 | 1,017,834 | - Performance obligations for self-developed games are satisfied over the estimated player relationship period, while performance obligations for third-party game publishing services and in-game information services are recognized at a point in time when the services are provided[83][84] - All transaction prices allocated to remaining performance obligations (RMB 69,593 thousand) are expected to be recognized within one year[85] 5. Profit Before Tax H1 2024 profit before tax was RMB 366.58 million, influenced by various expenses and adjustments including cost of sales, advertising, depreciation, employee benefits, and financial asset impairment Profit Before Tax Adjustments (for the six months ended June 30, 2024, RMB in thousands) | Item | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Service fees charged by distribution platforms and payment service providers | 264,142 | 278,109 | | Information service costs | 89,406 | 2,912 | | New media costs | 78,395 | 91,721 | | Advertising expenses | 14,024 | 45,378 | | Depreciation of property and equipment | 1,976 | 2,362 | | Depreciation of right-of-use assets | 4,141 | 4,152 | | Amortisation of intangible assets | 619 | 452 | | Research and development costs | 6,142 | 6,802 | | Impairment of trade receivables | 38 | 28 | | Impairment of prepayments, deposits and other receivables | — | 10,000 | | Auditor's remuneration | 600 | 600 | | Employee benefit expenses (excluding directors' and chief executive's emoluments): Wages and salaries | 110,349 | 131,272 | | Employee benefit expenses: Pension scheme contributions | 2,966 | 2,886 | | Employee benefit expenses: Equity-settled share-based payment expenses | 14,889 | 8,893 | | Net foreign exchange differences | 1,462 | (7,952) | | Impairment of investments in joint ventures and associates | 3,912 | — | - Information service costs significantly increased from RMB 2,912 thousand in H1 2023 to RMB 89,406 thousand in H1 2024[86] - Advertising expenses decreased from RMB 45,378 thousand in H1 2023 to RMB 14,024 thousand in H1 2024[86] 6. Income Tax Subsidiaries apply varying income tax rates (15% preferential, 25% statutory); income tax expense for the period was RMB 56.736 million, comprising current and deferred tax - Zengame Shenzhen, Tiantianlaiwan (high-tech enterprise), and Hainan Tiantianlaiwan (Hainan Free Trade Port) are subject to a preferential tax rate of 15%[88] - Metaverse enjoys a preferential income tax rate of 12.5% (software enterprise) from 2023 to 2025[88] - Other Chinese subsidiaries are subject to a statutory income tax rate of 25%, while assessable profits in Hong Kong are subject to Hong Kong profits tax at 16.5%[88] Major Components of Income Tax Expense for the Period (RMB in thousands) | Item | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Current tax: Charge for the period | 45,155 | 76,097 | | Deferred tax | 11,581 | (18,442) | | Total tax expense for the period | 56,736 | 57,655 | 7. Dividends The Board does not recommend an interim dividend for the six months ended June 30, 2024 - The Board does not recommend paying any interim dividend for the six months ended June 30, 2024[90] 8. Earnings Per Share Attributable to Ordinary Equity Holders of the Parent H1 2024 basic EPS was RMB 30.72 cents and diluted EPS was RMB 30.07 cents, both lower than the prior year Basic and Diluted Earnings Per Share Calculation Data (for the six months ended June 30, 2024, RMB in thousands/share) | Indicator | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Profit: Profit attributable to ordinary equity holders of the Company used in the basic and diluted earnings per share calculation | 309,844 | 404,845 | | Shares: Weighted average number of ordinary shares in issue during the period used in the basic earnings per share calculation | 1,008,762,680 | 999,284,570 | | Dilutive effect — weighted average number of ordinary shares: Share option scheme | 5,790,846 | 7,909,374 | | Dilutive effect — weighted average number of ordinary shares: Share award scheme | 15,897,215 | 16,159,121 | | Diluted weighted average number of ordinary shares | 1,030,450,741 | 1,023,353,065 | - Basic earnings per share were RMB 30.72 cents, and diluted earnings per share were RMB 30.07 cents[66] 9. Property and Equipment As of June 30, 2024, property and equipment net book value increased to RMB 14.832 million, driven by RMB 8.913 million in property additions, with depreciation at RMB 1.976 million Changes in Net Book Value of Property and Equipment (as of June 30, 2024, RMB in thousands) | Item | Electronic Equipment | Motor Vehicles | Leasehold Improvements | Properties | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | At December 31, 2023, net book value | 2,419 | 5,138 | 96 | — | 7,653 | | Additions | 249 | — | — | 8,913 | 9,162 | | Disposals | (22) | — | — | — | (22) | | Depreciation provided during the year | (1,037) | (773) | (96) | (70) | (1,976) | | Exchange adjustments | — | 15 | — | — | 15 | | At June 30, 2024, net book value | 1,609 | 4,380 | — | 8,843 | 14,832 | - The net book value of property and equipment increased from RMB 7,653 thousand as of December 31, 2023, to RMB 14,832 thousand as of June 30, 2024[93] - Additions to property and equipment for the period totaled RMB 9,162 thousand[93] 10. Trade Receivables As of June 30, 2024, trade receivables decreased to RMB 115.753 million, with most due within 90 days and credit risk strictly monitored - The Group's trade receivables primarily comprise amounts due from third-party distribution platforms and payment service providers[97] Ageing Analysis of Trade Receivables (as of June 30, 2024, RMB in thousands) | Ageing | 2024 June 30 (Unaudited) | 2023 Dec 31 (Audited) | | :--- | :--- | :--- | | Within 90 days | 110,332 | 165,900 | | 91 days to 180 days | 2,680 | 1,629 | | 181 days to 1 year | 1,813 | 528 | | 1 year to 2 years | 928 | 634 | | Total | 115,753 | 168,691 | - Trade receivables are non-interest-bearing and generally have a credit period of within 90 days[97] 11. Financial Assets at Fair Value Through Profit or Loss As of June 30, 2024, financial assets at fair value through profit or loss surged to RMB 258.469 million, mainly bank-issued wealth management products with 1.92% to 2.70% annual returns Financial Assets at Fair Value Through Profit or Loss (RMB in thousands) | Item | 2024 June 30 (Unaudited) | 2023 Dec 31 (Audited) | | :--- | :--- | :--- | | Wealth management products issued by licensed banks, measured at fair value | 258,469 | 15,521 | - The wealth management products are denominated in RMB, with an expected annual return rate ranging from 1.92% to 2.70% for the six months ended June 30, 2024[99] - These products are measured at fair value through profit or loss and are classified as Level 2 in the fair value hierarchy[99] 12. Trade Payables As of June 30, 2024, trade payables slightly decreased to RMB 14.477 million, with most due within 3 months Ageing Analysis of Trade Payables (RMB in thousands) | Ageing | 2024 June 30 (Unaudited) | 2023 Dec 31 (Audited) | | :--- | :--- | :--- | | Within 3 months | 12,724 | 16,543 | | 3 months to 6 months | 1,330 | 330 | | 6 months to 1 year | 288 | 186 | | 1 year to 2 years | 135 | 115 | | Total | 14,477 | 17,174 | - Trade payables are non-interest-bearing and generally settled within 180 days[100] 13. Other Payables and Accrued Expenses As of June 30, 2024, other payables and accrued expenses surged to RMB 293.727 million, mainly due to increased dividends payable Analysis of Other Payables and Accrued Expenses (RMB in thousands) | Item | 2024 June 30 (Unaudited) | 2023 Dec 31 (Audited) | | :--- | :--- | :--- | | Salaries and welfare payable | 65,534 | 98,365 | | Other taxes payable | 9,767 | 30,157 | | Dividends payable | 216,592 | — | | Other payables | 1,834 | 1,725 | | Total | 293,727 | 130,247 | - Dividends payable increased from zero at year-end 2023 to RMB 216,592 thousand, being the primary reason for the total increase[101] 14. Share Capital As of June 30, 2024, issued and fully paid share capital slightly increased to RMB 9.082 million due to the issuance of 1,183,750 shares from option exercises Overview of Share Capital Changes (RMB in thousands) | Item | Number of Issued Shares | Share Capital (RMB in thousands) | | :--- | :--- | :--- | | At December 31, 2023 and January 1, 2024 | 1,030,604,937 | 9,070 | | Share options exercised | 1,183,750 | 12 | | At June 30, 2024 | 1,031,788,687 | 9,082 | - 1,183,750 share options were exercised at a subscription price of HKD 1.29 per share, resulting in the issue of 1,183,750 shares for a total cash consideration of RMB 1,447,000[103] 15. Commitments As of the reporting period end, the Group had no contractual commitments - As of the end of the reporting period, the Group had no contractual commitments[104] 16. Related Party Transactions The Group had promotional service transactions with joint ventures and associates, with RMB 91 thousand in payables and no receivables; key management compensation totaled RMB 14.084 million Transactions with Related Parties (RMB in thousands) | Related Party Category | Transaction Type | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Joint ventures | Promotional service fees | 44 | — | | Associates | Promotional service fees | 91 | — | | Associates | Other income | — | 55 | - As of the end of the reporting period, the Group had no outstanding balances receivable from joint ventures and associates (December 31, 2023: RMB 47,000)[107] - Amounts payable to joint ventures and associates were RMB 91,000 (December 31, 2023: RMB 98,000), and these balances are unsecured, interest-free, and without fixed repayment terms[107] Key Management Personnel Compensation (RMB in thousands) | Item | 2024 (Unaudited) | 2023 (Unaudited) | | :--- | :--- | :--- | | Salaries, allowances and benefits in kind | 5,263 | 6,314 | | Equity-settled share-based payment expenses | 8,699 | 5,041 | | Pension scheme contributions | 122 | 136 | | Total | 14,084 | 11,491 | 17. Fair Value and Fair Value Hierarchy of Financial Instruments As of June 30, 2024, the Group's financial assets totaled RMB 2,749.970 million and liabilities RMB 43.755 million, with fair values approximating carrying amounts; fair value measurements are categorized into three levels, including Level 2 wealth management products and Level 3 unlisted equity investments, with sensitivity analysis provided Carrying Amounts of Financial Instruments (as of June 30, 2024, RMB in thousands) | Financial Asset Category | At Amortised Cost | At Fair Value Through Profit or Loss | At Fair Value Through Other Comprehensive Income | Total | | :--- | :--- | :--- | :--- | :--- | | Equity investments designated at fair value through other comprehensive income | — | — | 18,897 | 18,897 | | Trade receivables | 115,753 | — | — | 115,753 | | Financial assets included in prepayments, deposits and other receivables | 5,411 | — | — | 5,411 | | Financial assets at fair value through profit or loss | — | 258,469 | — | 258,469 | | Fixed deposits with original maturity over three months | 585,078 | — | — | 585,078 | | Fixed deposits with original maturity over one year | 689,973 | — | — | 689,973 | | Cash and cash equivalents | 1,076,389 | — | — | 1,076,389 | | Total financial assets | 2,472,604 | 258,469 | 18,897 | 2,749,970 | | Financial Liability Category | At Amortised Cost | | | | | Trade payables | 14,477 | | | | | Financial liabilities included in other payables and accrued expenses | 1,834 | | | | | Financial liabilities included in lease liabilities | 27,444 | | | | | Total financial liabilities | 43,755 | | | | - The fair value of wealth management products is estimated using a discounted cash flow valuation model and classified as Level 2[115] - The fair value of unlisted equity investments is estimated using the market approach and classified as Level 3, with key assumptions including discount for lack of marketability and price-to-earnings ratios[117] Fair Value Measurement Hierarchy of Assets (as of June 30, 2024, RMB in thousands) | Asset Category | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Equity investments designated at fair value through other comprehensive income: Unlisted equity investments | — | — | 18,897 | 18,897 | | Financial assets at fair value through profit or loss | — | 258,469 | — | 258,469 | | Total | — | 258,469 | 18,897 | 277,366 | - The fair value of Level 3 unlisted equity investments is sensitive to peer average price-to-earnings ratios, price-to-sales multiples, and discounts for lack of marketability[122] 18. Approval of Financial Statements The financial statements were approved and authorized for issue by the Board on August 22, 2024 - The financial statements were approved and authorized for issue by the Board of Directors on August 22, 2024[125] Definitions Definitions This section defines key terms and abbreviations, including financial metrics, company entities, and regulatory items, for clear report understanding - 'ARPPU' refers to the average monthly revenue per paying user[126] - 'Company' refers to Zengame Technology Holding Limited, an exempted company incorporated in the Cayman Islands on August 28, 2018[126] - 'Foreign Investment Law' refers to the Foreign Investment Law of the People's Republic of China, which became effective on January 1, 2020[126] - '2021 Share Award Scheme' refers to the scheme adopted by the Company on June 24, 2021[127] - '2024 Share Scheme' refers to the scheme adopted by the Company on May 31, 2024[127]