In a significant move within the gaming industry, Yuanshi Digital Technology Co., Ltd. has recently had its application to list on the Beijing Stock Exchange accepted. This marks a considerable step for the company, which specializes in the production of 3D digital content, with a particular focus on gaming as its main application area.
Over the past few years, Yuanshi Digital has shown impressive growth in its financial performance. From 2021 to 2023, the company reported revenues of 412 million yuan, 503 million yuan, and 527 million yuan respectively. Alongside this, the net profits attributable to shareholders during the same timeframe were 71 million yuan, 69 million yuan, and 86 million yuan. Such figures indicate the company’s steady market position amidst a rapidly evolving industry.
3D digital content created for the gaming sector has been a significant contributor to Yuanshi's revenue. During this period, more than half of the company's total income stemmed from the gaming industry. This is not surprising, considering gaming firms continue to seek high-quality digital content to enhance their products. Yuanshi's client list includes heavyweights like Tencent, Microsoft Game Studios, and Electronic Arts, all of which rely on the company for top-tier 3D content production. In fact, Tencent has accounted for the largest share of Yuanshi's earnings over the years, with contributions of 73 million yuan, 67 million yuan, and 76 million yuan, making it Yuanshi's leading client.
Notably, popular games developed by Tencent, such as "Honor of Kings" and "Delta Action," feature Yuanshi's work prominently. Additionally, Yuanshi has extended its services to international titles like "God of War" and "Baldur's Gate 3," with international markets contributing approximately 50% of its revenue in 2023. The competitive landscape in which Yuanshi operates showcases its unique position within the A-share sector, where few companies dedicate their efforts to the gaming industry specifically.
Unlike Yuanshi, companies such as Silk Road Vision and Fantawild Data focus primarily on digital exhibitions and areas like architecture and advertising. The gaming sector demands a higher level of technical prowess due to its specific visual requirements, which perhaps explains why Yuanshi has consistently achieved higher profit margins relative to its peers. In 2023, Yuanshi's net profit margin reached an impressive 15.91%, well above its competitors.
The growth in the number of game approvals issued by regulatory bodies has given rise to optimism surrounding Yuanshi's earnings potential. In 2024, the National Press and Publication Administration distributed 1,416 game licenses, signaling a recovery to pre-pandemic levels. This development has prompted industry experts to anticipate a significant resurgence in the gaming market, particularly with emerging titles such as “Black Myth: Wukong” set to elevate China’s gaming prominence on the global stage. With projections that game approvals will continue at a similar pace in 2025, the outlook for the sector appears positive.
However, Yuanshi Digital's IPO faces challenges stemming from the specific nuances of the gaming industry. Historically, game-focused companies have struggled to navigate the public markets successfully. A notable case occurs in 2018 with Guangzhou Duoyi Network Technology, which withdrew its application for an IPO. Since then, few gaming companies have successfully listed on stock exchanges such as Shanghai and Shenzhen. Additionally, recent reports suggest that the Beijing Stock Exchange is adopting a cautious stance toward companies within the gaming sector, presenting more obstacles for potential listings.
While Yuanshi does not own any gaming copyrights, its position in the production of digital content places it on the cusp of the gaming industry's ecosystem. This relationship raises questions about the degree to which Yuanshi's success is tied to the gaming sector. Past instances reveal that companies tangentially connected to gaming have successfully listed, notably Thunder God Technology, which became the first eSports equipment company on the Beijing Stock Exchange. In its listing inquiry, the exchange probed Thunder God on its reliance on the gaming industry, to which the company clarified that most of its sales focused on individual consumers rather than gaming enterprises.
In contrast, Yuanshi's performance is evidently intertwined with the gaming industry. Thus, its progress through the IPO process could set a precedent for other similar projects. Beyond gaming, Yuanshi also engages in producing animated 3D content, with notable credits in popular animations and films like "Big Fish & Begonia," "The King's Avatar," and "A Record of a Mortal’s Journey to Immortality." This diversification has allowed the company to gain valuable experience and expertise in animation production.
However, it's worth noting that Yuanshi once sought to create original content but ultimately pivoted back to subcontracted production due to unsuccessful attempts, largely stemming from the underperformance of their animated film "Mama Duck." The company declared a proactive withdrawal from its prior IPO attempt due to severe financial losses between 2018 and 2020, where revenue did not surpass efforts to become a creative entity and resulted in significant losses.
Today, as new players like Hangzhou Xuanji Technology emerge into the market, focusing on original 3D digital content, the landscape is becoming more varied. Regardless, the advent of artificial intelligence is poised to disrupt both outsourced and original 3D content creation processes. Recent innovations such as VAST's Tripo AI tool mark the beginning of this transformation, despite current limitations in generating realistic animations. As technology evolves, it could revolutionize the media industry.
Yuanshi acknowledges that failing to adapt to technological advancements poses a risk to maintaining its competitive edge. Should the company succeed in its listing on the Beijing Stock Exchange, it might serve as an encouraging signal for industry peers also striving for growth and recognition within the capital markets.