Underestimated User Value, Initiate with "Buy"

股

票

研 [Table_Title] Jason Zhou 周桓葳 Company Report: Zengame (02660 HK)

究 (852) 2509 5347 EquityResearch 公司报告：禅游科技 (02660 HK) [email protected]

7 October 2020 Underestimated[Table_Summary] User Value, Initiate with "Buy"

被低估的用户价值，首予“买入”评级

 According to a Frost & Sullivan ("F&S") report, compared with other 公 Rating:[Table_Rank] Buy mobile games such as hardcore games, card and board mobile games Initial 司 usually have 1) longer life cycles, 2) more stable MAU, 3) lower ARPPU, and 4) comparatively shorter but fixed single play time duration. 报评级：买入 (首次覆盖) 告  Zengame Technology (02660 HK, the "Company") is an established mobile games developer and operator in the PRC with special focus on CompanyReport 6[Table_Price]-18m TP 目标价 : HK$2.25 card and board and other casual mobile games. The Company's signature game Tiantian Fight the Landlord - Live-action Version mini program ranked No.3 in the games category on Alading’s (a third-party data Share price 股价： HK$1.050

company) index in August. Driven by its high player base and cooperation

with well-known advertising platforms such as Tencent and ByteDance, the 告

Company's in-game information service surged 187.6% yoy to RMB292.0 Stock performance

证 million in 1H20 and we believe that in-game information service is the main 股价表现报

driver of the Company's revenue growth. The Company's total revenue is [Table_QuotePic] 120.0 % of return

券 expected to grow at a CAGR of 26.1% during 2019 to 2022. 究

100.0

研

 研 We forecast the Company's shareholders' net profit to be RMB285.0 80.0 究 million, RMB324.1 million and RMB361.8 million in 2020-2022, 60.0 券 respectively. We believe that 1) the Company’s in-game information service

报 will be the main revenue driver and have further growth momentum given 40.0

告证 expected broad player base and 2) revenue from virtual items is expected to 20.0

EquityResearch Report

keep steady growth due to the relative stable amount of paying players. 0.0

(20.0)  We initiate our coverage on Zengame with a TP of HK$2.25 and an investment rating of "Buy". Our TP corresponds to 7.1x, 6.5x and 6.1x (40.0) Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 [Tab 2020-2022 P/E, respectively. HSI Index le_I ZENGAME TECHNOLO  根据弗若斯特沙利文的报告，与其他手机游戏例如硬核游戏相比，棋牌类手机游戏通常具 nfo1 有：1）更长的生命周期；2）更加稳定的月活跃用户；3）较低的平均每用户收益；以及 4）相对较短但固定的单机游戏时长。 [Table_PriceChange] ] Change in Share Price 1 M 3 M 1 Y 互  禅游科技（02660 HK，“公司”）是中国知名的手机游戏开发商和运营商，专注棋牌和其股价变动 1 个月 3 个月 1 年联他休闲手机游戏。公司主打游戏《天天斗地主-真人版》小程序在 8 月份阿拉丁（第三方 Abs. % (11.0) (4.5) 41.9 绝对变动 % 网数据公司）指数游戏类别中排名第三。得益于其庞大的玩家基础以及与腾讯和字节跳动等 Rel. % to HS Index (8.1) 4.4 49.0 行知名广告平台的合作，公司游戏内信息服务在 2020 年上半年同比增长 187.6%至人民币相对恒指变动 % 亿元，且我们认为游戏内信息服务将成为公司收入增长的主要驱动力。在年 Avg. share price（HK$）

业 2.920 2019 1.1 1.2 0.9 InternetSector

平均股价（港元）至 2022 年期间，公司的总收入预计将以 26.1%的复合年增长率增长。 Source: Bloomberg, Guotai Junan International.  我们预测公司 2020 年至 2022 年股东净利分别为人民币 285.0 百万元、人民币 324.1 百万元和人民币 361.8 百万元。我们认为：1）公司游戏内信息服务将成为主要的收入来源并且在预计扩展的玩家基数下有进一步增长动力； 2）由于付费玩家的数量相对稳定，虚拟物品的收入预计将保持稳定增长。

 我们首次覆盖禅游并给予 2.25 港元的目标价以及“买入”的投资评级。目标价分别对应 7.1 [Tab 倍、6.5 倍和 6.1 倍 2020-2022 年市盈率。 le_I Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结Profit] 收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 nfo2

12/31 (RMB m) (RMB m) (RMB) (△%) (x) (RMB) (x) (RMB) (%) (%)

] 2018A 555 109 0.133 63.9 6.9 0.308 3.0 0.031 3.4 43.1 禅 2019A 662 161 0.167 25.6 5.6 0.619 1.5 0.047 5.0 27.0 2020F 1,001 285 0.280 67.7 3.3 0.835 1.1 0.030 3.2 33.5 游 2021F 1,155 324 0.303 8.2 3.1 1.067 0.9 0.031 3.4 28.4 科 2022F 1,329 362 0.322 6.3 2.9 1.306 0.7 0.032 3.5 24.7 技

[Table_BaseData]Shares in issue (m) 总股数 (m) 1,018.3 Major shareholder 大股东 The Core Trust Co.Ltd 64.3% Market cap. (HK$ m) 市值 (HK$ m) 1,069.2 Free float (%) 自由流通比率 (%) 35.7

Zengame(02660 HK) 3 month average vol. 3 个月平均成交股数 (‘000) 3,763.0 FY20 Net gearing (%) FY20 净负债/股东资金 (%) (39.9) 52 Weeks high/low (HK$) 52 周高/低 (HK$) 1.480 / 0.580 FY20 Est. NAV (HK$) FY20 每股估值（港元） 5.2

Source: the Company, Guotai Junan International.

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[Table_PageHeader] Zengame (02660 HK)

Industry Analysis

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Mobile Games Market in the People’s Republic of China

Thanks to the increasing penetration rate of smartphones and mobile internet in the People’s Republic of China (PRC), mobile games have become a key online games activity. Generally, mobile games refer to games that can be installed on mobile phones and tablets, which can be classified into different types based on game genre. According to China Internet Network

Information Center (CNNIC), China mobile netizens reached 932.4 million in 1H20, accounting to 99.2% of China’s overall internet 7 October2020 users. In addition, the amount of mobile game players in China reached 535.9 million in 1H20, up 14.5% yoy. However, we believe that growth rate of game players may decline over the next following years as the internet demographic dividend in China has been dwindling.

Figure-1: China mobile netizen scale Figure-2: Total amount of mobile game players in China

China mobile netizen scale yoy Total amount of mobile game players in China yoy

(million) (million) 1,000 14.0% 600 30.0% 932.4 27.5% 12.6% 535.9 900 846.8 12.0% 787.7 500 25.0% 800 10.6% 458.3 467.6 723.6 10.1%

] 2 r a M t h g i R _ e l b a T [ 700 656.4 10.0% 10.2% 8.9% 400 385.5 18.9% 20.0% 593.6 600 7.5% 8.0% 302.4 14.6% 500 300 267.0 15.0% 6.0% 400 13.3% 200 10.0% 300 4.0% 6.0% 200 100 5.0% 2.0% 100 2.0%

0 0.0% 0 0.0% 1H15 1H16 1H17 1H18 1H19 1H20 1H15 1H16 1H17 1H18 1H19 1H20

Source: CNNIC, Guotai Junan International. Source: CNNIC, Guotai Junan International.

China’s mobile games market surged in 1H20, driven by increasing online user time spent in 1Q20 during the quarantine

period. According to QuestMobile, a third-party data company, average daily time spent on mobile internet devices peaked at 7.3 (02660 HK) hours in March and returned to normal levels, which is 6.1 hours, in June. In addition, according to CNG, a third party data company, China’s mobile games market scale increased 35.8% yoy in 1H20, reaching RMB104.7 billion. During the post-COVID-19 period, China’s mobile games market scale maintained its growth momentum with 4.2% mom increase in August. 禅游科技 We believe that the market growth was mainly due to 1) expanding player base during the summer holiday period and 2)

momentum from strong titles such as Hok and Peacekeeper Elite. Looking ahead, we believe that the new supply of game titles Zengame will be the main driver of mobile games industry growth in our forecasted period. The total amount of new licensed games approved by the National Press and Publication Administration (NPPA) was boosted in September, with 188 domestic games licenses granted. In addition, 55 imported games have been approved for game licenses, granted by NPPA in August.

Figure-3: China Mobile Games Market Scale Figure-4: Average Daily Time Spent on Mobile Internet Devices

China Mobile Games Market Scale yoy Average daily time spent on mobile internet devices (hours) (billion) 8.0 120 90.0% 7.3 79.1% 104.7 80.0% 7.0 100 67.2% 6.0 6.1 70.0% 6.0 5.8 5.9

80 77.1 60.0% 5.0 49.8% 63.4 50.0%

60 56.1 4.0

35.8% 40.0% 3.0

40 37.5 30.0% Report

21.5% 2.0 20.0% 20.9 12.9% 20

10.0% 1.0

Company 0 0.0% 0.0 1H15 1H16 1H17 1H18 1H19 1H20 Jun.2019 Sep.2019 Dec.2019 Mar.2020 Jun.2020

Source: CNG, Guotai Junan International. Source: QuestMobile, Guotai Junan International. See the last page for disclaimer Page 2 of 13 [Table_PageHeader] Zengame (02660 HK)

Figure-5: China Mobile Games Market Scale During Figure-6: Amount of Licensed Games Approved by NPPA

Post-COVID-19 Period ] 1 r a M t h g i R _ e l b a T [

China Mobile Game Market Scale mom

(billion) Approved Domestic Games in 2020 Approved Imported Games in 2020

18.00 9.0% 200 188 7.9% 8.0% 180 17.80 17.8 169 160 7.0%

17.60 140

6.0% 7 October2020 120 17.40 110 109 5.0% 106 103 100 4.2% 100 4.0% 17.20 80 17.1 3.0% 55 57 55 17.00 60

2.0% 40 27 16.80 1.0% 20

16.60 0.0% 0 Jul.2020 Aug.2020 Jan.20 Feb.20 Mar.20 Apr.20 May.20 Jun.20 Jul.20 Aug.20 Sep.20

Source: CNG, Guotai Junan International. Source: NPPA, Guotai Junan International.

Card and Board Mobile Games Market in the PRC ] 2 r a M t h g i R _ e l b a T [

Both card games and board games belong to the category of tabletop games which are defined as games played on a table or any flat surface using cards, dice, miniatures or tiles, etc. For card games, playing cards are used as the primary game device. The majority of card games are folk games whose rules may vary according to different regions and local cultures. For board games, certain counters or pieces are moved and placed based on a set of rules. Generally, card and board mobile games have comparatively large and stable player bases that benefit from the popularity of traditional offline card and board game counter-parts. In addition, according to a Frost & Sullivan Report, compared with other mobile games such as hardcore games, card and board mobile games usually have (i) longer life cycles, (ii) more stable MAU, (iii) lower ARPPU and (iv)

comparatively shorter but fixed single play time duration which is mainly due to their existence of large and stable player base in the real world and the nature of traditional card and board games that have fixed gameplay rules.

According to Analysys, a third-party data company, mobile game players' in-game time spent on card and board games accounted (02660 HK) for 44.1% in January 2020, up 12.7 ppts yoy. We believe that the increase was mainly due to the suspension of offline card and board game entertainment under the impact from the COVID-19 pandemic. In addition, 14.7% of mobile game players only play card and board games instead of other games. According to iResearch, the market share of card and board mobile games as a 禅游科技 percentage of the total mobile games market is expected to be 2.1% in 2020. Traditionally, card and board games are physical

games played among friends and families for the purpose of entertainment and socializing. With the advancement of internet Zengame technology and popularization of mobile phones, and increasing number of card and board games has been developed to cater for demand for leisure activities without limitation on space and devices. As a result, some classic card and board mobile games have high penetration rates among all mobile games.

Figure-7: In-game Time Spent by Users in terms of Games Genre

Card & Board Puzzle MOBA Others

Jan.2019 31.4% 17.5% 13.7% 37.3%

Jan.2020 44.1% 13.4% 9.7% 32.8%

Report

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Company

Source: Analysys, Guotai Junan International.

See the last page for disclaimer Page 3 of 13 [Table_PageHeader] Zengame (02660 HK)

Figure-8: Expected Market Share in terms of Mobile Games Genre in 2020

] 1 r a M t h g i R _ e l b a T [

RPG

1.9% 8.1%

1.9% MOBA 2.1% 2.3% SLG 38.1% RCG 8.3%

FPS 7 October2020 PZL 8.5% Card and Board

AVG 8.7% Life Simulation 20.1% Others

Source: iResearch, Guotai Junan International. * Definition of each game genre could be found on table-1.

Table-1: Classification of Mobile Games Types Characteristics

] 2 r a M t h g i R _ e l b a T [ ACT (Action game) Eye coordination and reaction-time is emphasized. AVG (Action-Adventure game) Combines core elements from both the action game and adventure game genres. CCG (Collectible card game) Players acquire cards into a personal collection from which they create customized decks of cards and challenge other players in matches by crafting customized decks in virtue of the synergies of card combinations. FPS (First-Person Shooter) Centered on gun and other weapon-based combat in a first-person perspective. Life-Simulation game Form a subgenre of simulation games in which the player lives or controls one or more virtual characters (human or otherwise). MOBA (Multiplayer online A genre of online real-time strategy games in which two teams of characters compete battle arena game) head-to-head with the goals of protecting their home base and destroying the towers, turrets, or other structures of the opposing team's stronghold. PZL (Puzzle game) The types of puzzles can test many problem-solving skills including logic, pattern recognition, sequence solving, spatial recognition, and word completion.

RCG (Racing game) The player partakes in a racing competition with any type of land, water, air or space vehicles. (02660 HK)

RPG (Role playing game) Users assume the roles of characters in a fictional setting.

SIM / SLG (Simulation game) Closely simulates real world activities such as construction, business management, real life, etc. 禅游科技 Sport game Simulates sports and usually has similar rules as real world sports. Source: the Company, Guotai Junan International.

Zengame The PRC Mobile In-Game Advertising Market

Mobile in-game advertising refers to advertising in mobile games, where advertisements can be integrated into the game either through a display in the background, such as an in-game billboard or a commercial during game loading period, or highly integrated within the game so that the advertised product is part of the game or is featured prominently within in-game cinematics. In-game advertising is an important way for mobile developers to maximize revenue, especially those using the free-to-play model. Stimulated by explosive growth of the mobile games market in the PRC in terms of revenue and user base, more and more advertisers are currently exploring the market of in-game advertising, as is reflected by the significant growth in the size for mobile in-game advertising market. According to a Frost & Sullivan report, mobile games developers are becoming more comfortable with in-game advertising and more confident in the effectiveness of their strategies.

Report

Company

See the last page for disclaimer Page 4 of 13 [Table_PageHeader] Zengame (02660 HK)

Company Analysis

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Company Introduction

Zengame (the "Company") is an established mobile games developer and operator in the PRC with special focus on card and board and other casual mobile games. The Company’s history can be traced back to July 2010 when Zen-Game Shenzhen, which was primarily engaged in research and development and operation of web-based online games in the PRC, was founded and commenced business. Over the years, the Company has gradually changed its business focus from 7 October2020 web-based online games to mobile games and has continued to expand its games portfolio. The Company's signature game Tiantian Fight the Landlord - Live-action Version mini program ranked No.3 in the game category in Alading’s (a third-party data company) index in August. In addition to games that the Company developed themselves, beginning in 2015, the Company also began to operate and distribute casual online games developed by third parties. In 1H2020, the Company’s active portfolio of mobile games included a total of 75 games.

Table-2: Key Milestones

Year Milestones 2010 Zen-Game Shenzhen was established.

] 2 r a M t h g i R _ e l b a T [

2013 Zengame launched Tiantian Fight the Landlord (Live-action Version) (天天斗地主(真人版)), the Company’s most popular online card game.

2014 Zengame started its business relationships with several of the top-tier mobile manufacturers in China, including Huawei, Vivo and Oppo. 2015 Zengame was awarded “Top 10 Cutting-Edge Domestic Game Enterprise Award (十佳新锐国内游戏企业奖)”.

(1) Total number of DAU of all of the Company’s games reached one million.

Zengame began to operate and distribute casual online games developed by third parties.

2016 Zengame’s Tiantian Fight the Landlord (Live-action Version) (天天斗地主(真人版)) was awarded “Top 10 Most Popular Self-developed Single-player Game (2016 年度十大最受欢迎原创单机游戏奖). (1)

Number of DAU of the Company’s Tiantian Fight the Landlord (Live-action Version) (天天斗地主(真人版)) reached (02660 HK)

one million. (2) Number of MAU of the Company’s Tiantian Fight the Landlord (Live-action Version) (天天斗地主(真人版)) reached

10 million. 禅游科技 Total number of accumulative registered users of all of the Company’s games reached 100 million.

Zengame’s Tiantian Fight the Landlord (Live-action Version) (天天斗地主(真人版)) was awarded “2017 Black Stone

2017 Zengame Award – Most Popular Casual Game of the Year and Tian Fu Award – Card and Board Casual Game of the Year (2017 年度最佳休闲棋牌游戏奖及 2017 年度最受欢迎休闲游戏奖)”. Number of accumulative registered users of the Company’s Tiantian Fight the Landlord (Live-action Version) (天天斗地主(真人版)) reached 100 million. 2018 Fight the Landlord Everyday (Real Players Version) won MHA Black Stone Awards “MHA the Most Popular Casual Game of the Year”. Fight the Landlord (Single Device/Match) won Golden Exclamation Award “the Most Promising Chess & Cards Game”. 2019 Zengame listed on the Main Board of the Stock Exchange.

Source: the Company, Guotai Junan International. Note (1): Daily active users (DAU) refers to an existing registered player that has entered and played any of the mobile games on any device at least once during such period; repeated entries by the same player from the same device are counted once only. Note (2): Monthly active users (MAU) refers to an existing registered player that has entered and played any of the mobile games on any device at least once during such period; repeated entries by the same player from the same device are counted once only.

Shareholders

Report

The Core Trust Company Limited is the largest shareholder. According to the latest information from Hong Kong

Exchanges and Clearing Limited, the Core Trust Company Limited held 64.3% of total shares of the Company in September

2020. Company

See the last page for disclaimer Page 5 of 13 [Table_PageHeader] Zengame (02660 HK)

Table-3: The Company's Substantial Shareholders' Interest in September 2020

Shareholders' Name Number of Shares] 1 r a M t h g i PercentageR _ e l b %a T [

The Core Trust Company Limited 657,078,480 64.3%

Sky-zen Capital Limited 231,712,000 22.7% J&L Y Limited 197,604,100 19.3% D Fun Limited 165,201,300 16.5% BAO TRUST 90,860,920 8.9%

Playa Technology Limited 90,860,920 8.9% 7 October2020 Hezhong Power Limited 60,825,080 6.0% Source: Hong Kong Exchanges and Clearing Limited, Guotai Junan International.

Business Operation

Zengame principally engages in the development and operation of mobile games with special focus on card and board and other casual mobile games. The Company’s games are divided into three main categories: card games, board games and other games (including other casual games and hardcore games). Most of the Company’s games are based on classic real-world card and board games which enjoy wide popularity and a long history. According to a Frost & Sullivan Report, card and board mobile games usually have longer life cycles due to their existing large and stable player base in the real world and the nature of traditional card and board games of fixed gameplay rules with which players are familiar. As at 30 June 2020, all of

] 2 r a M t h g i R _ e l b a T [

the Company’s games were offered as mobile games and the Company’s active portfolio of games included a total of 75 games, including 36 card and board games and 39 other games (including other casual games and hard core games).

Zengame has a healthy casual online mobile games portfolio. In terms of revenue and active users, Fight the Landlord (斗地主) and Mahjong (麻将) are the two most popular series of card and board mobile games the Company offers. In addition, the Company also offers casual games, such as Xiaoxingxing (指尖消星星), Chengyu Qing Liubu (成语请留步) and Physical Pinball (物理弹球). In addition, the Company launched nine new games in 1H20, among which 7 are casual games suh as Block Bast King (王者消方块) and Ace Fruit Cutting (王牌切水果) and two are local Mohjong games. The life cycle of mobile

games generally includes (1) an early growth stage during which the number of players and the revenue generated from a

game tend to increase; (2) a stable and mature stage during which the number of players and the revenue generated from a game tend to be stable; and (3) a late stage during which the number of players and the revenue generated from a game tend

to decrease. (02660 HK)

The Company's main card and board mobile games and other casual games keep its user growth momentum.

禅游科技  According to Questmobile, Tiantian Fight the Landlord - Live-action mini-program version (天天斗地主真人版小程序)

ranked No.4 in terms of MAU in mobile game category in June 2020, even under the offline work resumption Zengame environment.

 The Company's tile-matching games, Fingertips Xiaoxingxing (指尖消星星), was one of the top 10 IOS free downloaded games in China in December 2019.

The Company's games can be classified into two categories, one is a mini-program based version another is an app based version. For mini-program games, the Company developed its casual games such as Tiantian Fight the Landlord - Live-action Version mini program on both Weixin and DouYin platforms. We believe that mini-program based games could not only lower user acquisition cost but also increase the games penetration rate, relying on huge traffic on those super apps platforms. Besides, we believe that the Company has its in-game ecosystem as part of the Company's apps and mini-program games have their in-game distribution function. Players could shift to the Company's other casual games easily via the in-game distribution function. In that case, we believe in-game time spent would increase as players could play those games

interchangeably. Therefore, we believe that user loyalty will further increase and will enhance the in-game information service

conversion rate. Report

Company

See the last page for disclaimer Page 6 of 13 [Table_PageHeader] Zengame (02660 HK)

Figure-9: The Company's App Games Figure-10: The Company's Mini-Program Games

] 1 r a M t h g i R _ e l b a T [

7 October2020

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Figure-11: The Company's In-game Monetization Channels and Distribution Function

] 2 r a M t h g i R _ e l b a T [ Virtual Items

Monetization Channel In-game information service

Mini Program Game/ App Game

Virtual Items

In-Games Distribution e.g. Mahjong game e.g. Fight the Landlord Everyday In-game information

(Real Players Version) (02660 HK)

service

e.g. Fishing 禅游科技

Source: the Company, Guotai Junan International.

Zengame Game Monetization

All of Zengame’s online games are operated using a free-to-play model. Players are able to download mobile applications for free or otherwise access the Company’s games for free on mobile phones or tablets via application stores or social networks such as WeChat. Players may choose to enhance their game experience by purchasing virtual items offered by the Company. The Company believes this model of allowing players to play games without initial cost enables the Company to more effectively attract new players to experience the Company’s games and build up the Company’s player base, which the Company can subsequently monetize through sale of virtual items and in-game advertising.

In order to monetize player base, Zengame has implemented various measures to convert non-paying players into paying players and to increase the consumption levels of existing paying players. In all of the Company’s online games, the Company provides players with limited amounts of free virtual units every day they enter the game. This provides them the

opportunity to enjoy the game and to become engaged in and invested in advancing in the game. To encourage increased and

consistent levels of gameplay, the Company increases the amount of free virtual units provided for players who log in multiple Report days in a row. To further incentivize initial purchases, the Company offers a variety of packages, including packages at very low price levels. The Company also cooperates with mobile companies to hold online competitions with various awards and partner

with streaming platforms and TV stations to increase player interaction with hosts/hostesses and to further stimulate players to Company start making and increasing purchases.

See the last page for disclaimer Page 7 of 13 [Table_PageHeader] Zengame (02660 HK)

Financial Analysis

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Revenue Analysis

Zengame’s total revenue increased 52.1% yoy and reached RMB468.5 million in 1H20. The increase was mainly driven by the significant growth of the Company’s in-game information service, which up 187.6% yoy under the 1) further deepened strategy of the Company for the in-game information service business; 2) increasing cooperation with well-known advertising platforms, such as ByteDance and Tencent; and 3) optimizing and enriching the method of advertizing monetization. The 7 October2020 Company started generating revenue from its in-game advertising business since May 2018 and made up 62.3% of total revenue in 1H20. On the other hand, revenue from sales of virtual items decreased by 14.6% to RMB176.5 million, mainly due to the change in the Company’s revenue strategy by encouraging players, in particular non-paying players, to obtain game beans by watching in-game advertising videos or clicking the links of the commercial products instead of direct purchasing.

Table-4: Zengame’s Revenue Breakdown 1H2019 1H2020 Sales % of total YoY Sales % of total YoY RMB mn

Sales of Virtual Items 206.5 67.0% (22.3%) 176.5 37.7% (14.6%)

] 2 r a M t h g i R _ e l b a T [ -Self-Developed Games 201.0 65.2% (24.1%) 169.3 36.2% (15.8%) -Third Party Games 5.5 1.8% 488.8% 7.2 1.5% 29.2% In-game information service 101.5 33.0% 4,818.8% 292.0 62.3% 187.6% Total 308.0 100.0% 15.0% 468.5 100.0% 52.1% Source: the Company, Guotai Junan International.

Average MAU is expected to grow by 68.0%, 16.0% and 10.3% in 2020 to 2022, respectively. Average MAU of the Company surged 53.6% yoy from 54.0 million in 1H19 to 83.0 million in 1H20, due to 1) increasing online time spent under the impact of COVID-19 in 1Q20, 2) suspending of offline entrainment such as card games and Mahjong and 3) continuing

improvement of the Company's supporting systems such as big data analysis and promotion systems. We expect the

Company's average MAU to slightly retreat in 2H20 under offline work resumption and school reopening. Even so, in the long run, the Company's user base is expected to further expand due to the following reasons: 1) broaden user acquisition channels

such as through mini programs. Tiantian Fight the Landlord - Live-action Version mini program rank No.3 on Alading’s index

(02660 HK) within game category in August; 2) expected continuing strengthening of promotion efforts in expanding promotion channels such as Toutiao, Pinduoduo and Kuaishou; and 3) expected amplifying of mobile game pipeline. The Company obtained 6 new casual game publication numbers in 1H20. Overall, as at 30 June 2020, the Company owned 67 game publication numbers, 48 禅游科技 of which are card and board games and 19 of which are casual games.

Zengame We expect the conversion rate (MPU/MAU) to be stable and forecast to be 1.1%, 1.0% and 1.0% in 2020 to 2022, respectively, with expected expanded user base but increasing focus on in-game information service business. The conversion rate dropped 0.6 ppts from 1.7% in 1H19 to 1.1% in 1H20, mainly due to the Company's in-game information service strategy. Therefore, we forecast the Company’s average MPU to be 911 million, 948 million and 1,002 million in 2020 to 2022, respectively.

ARPPU is expected to slightly decrease from 36.0 in 2019 to 33.8 in 2022, under the expected mixed monetization mode of virtual items consumption and in-game information services. The Company’s ARPPU of virtual items decreased 11.4% yoy from RMB39.0 in 1H19 to RMB35.0 in 1H20, due to partial replacement of virtual items with in-game advertising.

We estimate the total revenue of the Company to increase yoy by 51.2%, 15.4% and 15.1%, respectively, in 2020 to 2022. Specifically, we estimate revenue from sale of virtual items to grow at a CAGR of 6.0% during 2019 to 2022 and believe

the Company could still maintain its business growth of sales of virtual items under the expected relative stable payment

conversion rate, even when faced with the slight drop in ARPU. In addition, in-game information service revenue is expected to Report grow at a CAGR of 43.4% from 2019 to 2022. We believe in-game information service to be the main driver of the Company's growth and expect it to make up 60.0%, 64.8% and 68.1% of total revenue in 2020 to 2022, respectively. Besides, on the

supply side: 1) the Company is expected to further optimize and improve its in-game information service strategy by Company continuously investing in technology and optimizing the capabilities in processing big data and advertisement software development kits; 2) the Company has not only strengthened the cooperation on advertising monetization with top advertising See the last page for disclaimer Page 8 of 13 [Table_PageHeader] Zengame (02660 HK)

platforms such as ByteDance and Tencent, but also developed some new advertising monetization platform partners such as

Kuaishou and Youshi Technology. On the demand side, we believe that players should have] 1 relativer a lyM strongt h g selfi -motivationR _ e l b fora T [

in-game advertising browsing for in-game experience enhancement, for example double rewards in Fight Landlord after browsing a 15 second insensitive in-game advertisement. With the combined affect of supply and demand factors, we expect the Company’s in-game information service value per MAU to increase and to be RMB0.61, RMB0.66 and RMB0.72 in 2020 to 2022, respectively.

Table-5: Zengame's Operating Data 7 October2020 CAGR 2018A 2019A 2020F 2021F 2022F 19A – 22F RMB ('000)

Sales of Virtual Items 481,277 355,100 399,873 406,960 423,194 6.0% Average MPU 1,120 809 911 948 1,002 7.4% ARPPU 36.0 37.0 36.6 35.8 35.2 (1.7%) In-game Information Service 73,673 307,000 601,001 747,591 905,407 43.4% Average MAU 35,875 48,538 81,545 94,630 104,351 29.1% In-game Information Service Value 0.17 0.53 0.61 0.66 0.72 11.1% per MAU YoY growth

] 2 r a M t h g i R _ e l b a T [ Game Revenue 4.7% (26.2%) 12.6% 1.8 % 4.0% n.a. Average MPU (20.5%) (27.8%) 12.6% 4.0% 5.8% n.a. ARPPU 33.3% 2.8% (1.2%) (2.1%) (1.7%) n.a. In-game Information Service n.a. 316.7% 95.8% 24.4% 21.1% n.a. Average MAU 59.8% 35.3% 68.0% 16.0% 10.3% n.a. In-game Information Service Value n.a. 208.0% 16.5% 7.2% 9.8% n.a. per MAU Source: the Company, Guotai Junan International.

Figure-12: Zengame's Revenue Composition Figure-13: Zengame's Total Revenue and Total Revenue

Growth

Sales of virtual items In-game information service Total Revenues yoy

RMB (Mn) (02660 HK)

100% 1,400 1,329 60% 13.3% 51.2% 90% 1,200 1,155 80% 50%

46.4% 1,001 禅游科技 70% 60.0% 1,000 64.8% 68.1% 40% 60% 800 50% 662 30% 86.7% 600 555 Zengame 40% 20% 30% 400 20.7% 53.6% 19.3% 20% 40.0% 15.1% 10% 35.2% 31.9% 200 15.4% 10% 0 0% 0% 2018A 2019A 2020F 2021F 2022F 2018A 2019A 2020F 2021F 2022F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Cost and Expense Analysis

We expect overall GPM to be 48.5%, 47.8% and 47.1% in 2020 to 2022, respectively. Gross profit margin declined 1.9 ppt yoy from 50.1% in 1H19 to 48.2% in 1H20, mainly due to an increase in in-game information services costs. Looking forward, we believe the percentage of revenue of information service costs to increase from 40.1% in 2019 to 52.8% in 2022, due to expected increasing revenue contribution of information service costs. In addition, we believe the percentage revenue of

distribution platform costs to be 24.1%, 24.2% and 24.4%, from 2020 to 2022, respectively, due to the expected steady growth

Report of revenue from sales of virtual items. However, the percentage of payment channels costs is expected to steadily decrease

from 2020 to 2022 due to expected increasing use of online payment channels, such as WeChat Pay and Alipay.

Company We estimate the sales and marketing expenses as a percentage of total revenue to be 8.8%, 8.5% and 8.4% in 2020 to

See the last page for disclaimer Page 9 of 13 [Table_PageHeader] Zengame (02660 HK)

2022, respectively, due to efficient marketing spending. Selling and distribution expenses increased by 15.1% yoy from

RMB35.1 million in 1H19 to RMB40.4 million 1H20, mainly due to the increase in marketing] 1 andr a salesM t labourh g i costs.R _ e Lookingl b a T [

ahead, with expected expanding market scale of causal games but efficient marketing spending, we expect yoy growth of selling and distribution expenses to be 8.9%, 11.4% and 13.7% in 2020 to 2022, respectively. On the other hand, we believe that spending on research and development to total revenue will account for 5.0%, 5.3% and 5.6% in 2020 to 2022, respectively, due to the expected strengthening of development of causal games. Hence, we forecast operating profit margin to be 31.7%, 31.3% and 30.4% in 2020 to 2022, respectively.

7 October2020 Figure-14: Zengame's Gross Profit Margin Figure-15: Zengame's Selling and distribution expenses/ Total Revenue, Research and development/ Total Revenue and Operating profit margin

Selling and distribution expenses Gross Profit Margin Operating profit margin Research and development costs 50% 35.0% 49.1% 49% 30.0% 31.7% 31.3% 30.4% 48% 48.5% 25.0% 26.9% 47% 47.8% 47.1% 20.0% 21.9%

] 2 r a M t h g i R _ e l b a T [ 46% 15.0% 12.8% 45% 12.2% 8.8% 8.5% 8.4% 10.0% 44% 44.5%

43% 5.0% 5.8% 5.1% 5.0% 5.3% 5.6% 42% 0.0% 2018A 2019A 2020F 2021F 2022F 2018A 2019A 2020F 2021F 2022F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Earnings Forecasts

We forecast the Company’s net profit attributable to shareholder to be RMB285.0 million/ RMB324.1 million/ RMB361.8 (02660 HK) million in 2020 to 2022, respectively. We expect shareholders’ profit to increase yoy by 77.6%, 13.7% and 11.6% in 2020 to 2022, respectively. We believe that 1) in-game information services will be the main revenue driver and have further growth

momentum given by the expected broad player base; and 2) revenue from virtual items is expected to keep steady growth due 禅游科技 to the relatively stable amount of paying players. EPS is expected to be RMB0.280, RMB0.303 and RMB0.322, up 67.7%, 8.2% and 6.3%, in 2020 to 2022, respectively.

Zengame Table-6: Zengame's Key Financial Data YoY

RMB(mn) 2020F 2021F 2022F 2020F 2021F 2022F Revenue 1,001 1,155 1,329 51.2% 15.4% 15.1% Operating profit 318 361 403 78.3% 13.7% 11.7% Shareholders’ profit 285 324 362 77.6% 13.7% 11.6% EPS, basic (RMB) 0.280 0.303 0.322 67.7% 8.2% 6.3%

Gross margin 48.5% 47.8% 47.1% (0.6ppt) (0.7ppt) (0.7ppt) Operating margin 31.7% 31.3% 30.4% 4.8ppt (0.4ppt) (0.9ppt) Net profit margin 28.5% 28.1% 27.2% (4.6ppt) (0.4ppt) (0.9ppt) Source: the Company, Guotai Junan International.

Valuation

Report We initiate with a "Buy" rating and TP of HK$2.25, representing 7.1x 2020 PER, 6.5x 2021 PER and 6.1x 2022 PER. We believe that the Company has recently been undervalued with its large player base and room for further monetization of

in-game information services . On the other side, we forecast revenue from virtual game items to be stable due to the Company Company's operating strategy. Downside risks of the Company include 1) potential failure of the launch of strong titles, 2) failure to expand the user base, and 3) new signature games not meeting player requirements. See the last page for disclaimer Page 10 of 13 [Table_PageHeader] Zengame (02660 HK)

Table-7: Peers Comparison PER (x) PBR (x) P/S PEG Market Cap

] 1 r a M t h g i R _ e l b a T [ Local currency Company Ticker Currency Price 20F 21F 22F 20F 21F 22F 20F 20F-22F (million) US Online Game Companies Glu Mobile Inc GLUU US USD 7.800 22.7 18.2 12.7 3.5 3.0 2.6 2.5 0.7 1,333 Sciplay Corp-Class A SCPL US USD 17.240 16.0 15.9 17.2 6.9 3.7 2.5 3.9 (4.4) 2,178 Take-Two Interactive Software TTWO US USD 162.200 45.3 32.9 29.1 7.3 5.9 5.0 4.3 1.3 18,546 Electronic Arts Inc EA US USD 124.840 12.0 22.7 21.2 4.8 4.4 4.0 5.3 2.2 36,053 Activision Blizzard Inc ATVI US USD 78.300 24.2 23.3 20.4 4.1 3.6 3.1 7.7 2.7 60,438

Netease NTES US USD 89.390 24.0 20.5 18.0 4.6 4.0 3.6 5.8 1.5 61,771 7 October2020 Simple Average 24.0 22.3 19.7 5.2 4.1 3.4 4.9 0.7 Weighted Average 23.7 23.1 20.5 4.8 4.1 3.6 6.1 2.0

HK Online Game Companies Kingsoft Corp Ltd 3888 HK HKD 40.600 10.9 34.6 27.4 2.5 0.0 0.0 8.1 (0.3) 55,733 Forgame Holdings Ltd 484 HK HKD 2.750 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 438 Linekong Interactive Group C 8267 HK HKD 0.500 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 184 Idreamsky Technology Holding 1119 HK HKD 4.990 11.0 9.6 8.6 1.3 1.2 n.a. 1.8 0.9 6,336 Tencent 700 HK HKD 527.500 36.6 29.8 24.8 7.9 6.3 5.0 9.2 1.7 5,054,892 Boyaa Interactive Int. 434 HK HKD 0.550 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 393 Fingertango Inc 6860 HK HKD 0.490 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 946 Leyou Technologies Holdings 1089 HK HKD 3.250 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10,027 Fire Rock Holdings Ltd 1909 HK HKD 5.400 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5,184 Digital Hollywood Interactiv 2022 HK HKD 0.079 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 158

] 2 r a M t h g i R _ e l b a T [ Ourgame International Holdin 6899 HK HKD 0.500 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 539 Baioo Family Interactive Ltd 2100 HK HKD 1.090 7.4 5.9 4.5 1.5 1.3 1.1 2.0 0.3 2,983 Feiyu Technology Internation 1022 HK HKD 0.166 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 257 Friendtimes Inc 6820 HK HKD 2.620 9.4 7.2 6.2 2.4 1.8 1.4 2.1 0.4 5,732 IGG 799 HK HKD 8.650 7.0 8.0 7.6 2.7 2.1 1.8 2.0 (1.7) 10,638 Zengame Technology Holding 2660 HK HKD 1.050 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,069 Homeland Interactive Technol 3798 HK HKD 5.290 16.8 14.3 10.7 n.a. n.a. n.a. 8.6 0.7 6,644 Cmge Technology Group Ltd 302 HK HKD 3.710 9.7 7.6 6.6 1.7 1.5 1.5 1.7 0.5 8,645 Xd Inc 2400 HK HKD 40.100 32.2 23.8 18.4 5.8 4.7 3.8 4.7 1.0 18,210 Netdragon 777 HK HKD 17.200 9.8 7.7 6.6 1.3 1.2 1.0 1.4 0.4 9,700 Simple Average 28.0 16.2 12.6 5.0 3.6 2.5 9.8 0.6 Weighted Average 16.3 15.0 12.2 3.2 2.4 2.0 4.6 0.4

Advertising Companies China Literature Ltd 772 HK HKD 60.000 329.7 38.2 29.7 3.1 2.9 2.6 6.4 1.4 60,947 Momo Inc-Spon Adr MOMO US USD 14.870 8.9 6.8 5.8 1.7 1.4 1.2 1.4 0.4 3,103

Bilibili Inc-Sponsored Adr BILI US USD 48.170 n.a. n.a. 816.4 16.9 21.8 21.1 10.1 n.a. 16,639 (02660 HK) Sohu.Com Inc SOHU US USD 19.720 n.a. 25.4 20.7 17.6 11.3 5.6 0.4 n.a. 774 Weibo WB US USD 40.790 20.3 16.2 14.5 3.1 2.6 2.1 5.6 1.1 9,237 Bitauto BITA US USD 15.760 n.a. 35.6 20.2 0.9 0.8 0.8 0.8 n.a. 1,120

Cheetah Mobile CMCM US USD 1.970 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 274 禅游科技 Soufun SFUN US USD 10.785 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 97 Phoenix New Media FENG US USD 1.380 n.a. 20.0 6.9 n.a. n.a. n.a. 0.5 n.a. 100 Twitter Inc TWTR US USD 45.600 n.a. 65.2 49.1 4.3 4.0 4.1 10.9 n.a. 36,067

Sina SINA US USD 42.680 19.3 15.5 14.6 1.2 0.9 0.8 1.2 1.3 2,549 Zengame Facebook FB US USD 258.660 29.0 22.9 18.7 6.0 4.9 4.0 9.2 1.2 736,875 Simple Average 81.4 27.3 99.7 6.1 5.6 4.7 4.7 1.1 Weighted Average 31.9 24.8 36.3 6.1 5.1 4.3 9.2 1.2

E-commerce Companies Pinduoduo Inc-Adr PDD US USD 72.990 (105.2) 278.6 50.0 29.8 25.5 17.6 12.2 n.a. 87,415 Alibaba* BABA US USD 292.390 41.9 31.6 25.2 7.4 5.8 5.0 7.1 1.3 791,101 VIPSHOP VIPS US USD 15.070 12.4 10.3 9.1 2.4 2.0 1.7 0.7 0.7 10,187 EBay EBAY US USD 49.660 13.9 12.6 11.4 11.8 8.8 6.8 3.2 1.3 34,756 JD.com JD US USD 76.690 49.0 33.9 24.5 7.1 6.0 5.0 1.1 1.2 120,012 AMAZON MZN US USD 3099.960 65.2 51.8 39.7 16.7 12.5 9.5 4.2 2.3 1,552,738 Simple Average 12.9 69.8 26.7 12.5 10.1 7.6 4.8 1.4 Weighted Average 50.7 51.7 34.4 13.7 10.5 8.1 5.2 1.9

Search Engine Companies Sogou Inc-Adr SOGO US USD 8.870 88.7 28.6 25.0 3.1 2.8 2.5 3.0 1.0 3,438

Alphabet Inc-ClA GOOGL US USD 1451.020 25.5 20.7 17.0 4.5 3.9 3.3 7.0 1.1 987,794 Baidu Inc - Spon Adr BIDU US USD 124.830 16.6 13.6 11.2 1.6 1.5 1.3 2.7 0.8 42,576

Simple Average 43.6 21.0 17.7 3.1 2.7 2.4 4.2 1.0 Report Weighted Average 25.3 20.4 16.8 4.4 3.8 3.2 6.8 1.1

Overall Average 35.6 31.1 35.2 6.0 5.0 4.0 4.6 0.9

Overall Weighted Average 33.5 29.9 26.5 7.4 5.9 4.8 7.3 1.6 Company Source: Bloomberg. Note: * represents figures of FY20/FY21/FY22

See the last page for disclaimer Page 11 of 13 [Table_PageHeader] Zengame (02660 HK)

Financial Statements and Ratios [Table_IncomeStatement] [Table_BalanceSheet]

Income Statement ] 1 Balancer a M Sheett h g i R _ e l b a T [

Year end 31 Dec (RMB 000') 2018A 2019A 2020F 2021F 2022F

Total Revenue 554,950 662,100 1,000,873 1,154,551 1,328,601 Year end 31 Dec (RMB 000') 2018A 2019A 2020F 2021F 2022F

Cost of revenues (307,873) (337,147) (515,876) (602,163) (702,318) Property and equipment 2,589 3,652 7,054 7,410 8,180

Gross profit 247,077 324,953 484,997 552,388 626,284 Intangible assets 0 334 501 693 789

Investment in JVs 0 0 4,921 5,167 5,425

Other income and gains 10,704 17,638 19,251 20,822 22,533 Right-of-use assets 0 6,355 6,991 7,690 8,459

Selling and distribution expenses (71,183) (80,893) (88,077) (98,137) (111,603) Equity instruments designated at FVOCI 51,796 40,606 30,614 21,612 13,411 7 October2020

Administrative expenses (35,618) (43,210) (46,040) (49,646) (55,801) Prepayments, deposits and others 5,000 7,400 11,186 12,904 14,849

Research and development costs (28,296) (38,279) (50,044) (61,191) (74,402) Deferred tax asset 459 546 655 792 966 Other expenses (1,169) (2,147) (2,576) (3,092) (3,710) Total Non-current Assets 59,844 58,893 61,922 56,267 52,080 Operating Profit 121,515 178,062 317,511 361,145 403,302

Finance cost, net (495) (350) (385) (404) (424) Trade receivables 98,373 193,204 222,416 256,567 295,245 Profit Before Tax 121,020 177,712 317,036 360,642 402,768 Contract costs 19,683 8,743 7,432 6,094 4,814 Income Tax (12,211) (17,193) (32,021) (36,533) (41,002) FA at FV through P&L 131,915 166,998 199,678 234,466 277,380

profit After Tax 108,809 160,519 285,016 324,109 361,766 Prepayments, deposits and others 13,515 18,648 28,190 32,518 37,420

Non-controlling Interest 0 0 0 0 0 Time deposits over three months 0 131,662 157,994 189,593 227,512

Shareholders' Profit / Loss 108,809 160,519 285,016 324,109 361,766 Cash & Cash Equivalents 11,052 161,843 338,937 550,311 788,807

Basic EPS 0.133 0.167 0.280 0.303 0.322 Total Current Assets 274,538 681,098 954,647 1,269,549 1,631,178

] 2 r a M t h g i R _ e l b a T [

[Table_CashFlowStatement] Cash Flow Statement Total Assets 334,382 739,991 1,016,568 1,325,816 1,683,258

Year end 31 Dec (RMB 000') 2018A 2019A 2020F 2021F 2022F

Profit before taxation 121,020 177,712 317,036 360,642 402,768 Trade payables 17,080 71,731 72,659 84,812 98,918

Finance costs 495 350 385 404 424 Contract liability 30,305 15,558 34,665 28,967 36,612

Dividend income (174) (174) (174) (174) (174) Other payables and accruals 23,321 33,256 39,855 50,184 61,216

Interest income (58) (3,751) (4,314) (4,745) (5,220) Lease liabilities 0 2,461 2,707 2,978 3,276

FV gains on financial assets at FVPL (7,104) (6,757) (7,433) (8,176) (8,994) Tax payable 3,460 11,380 7,420 9,400 8,410

share-based payment expenses 7,019 6,436 8,235 3,697 4,204 Total Current Liabilities 74,166 134,386 157,306 176,340 208,432

Depreciation of PPE 987 1,703 2,804 3,867 4,125

Depreciation of right-of-use assets 0 2,384 2,622 2,885 3,173 Deferred tax liabilities 7,746 6,210 5,103 4,295 3,701

Changes in working capital (44,130) (39,187) (16,254) (24,066) (13,850) Lease liabilities 0 4,080 4,488 4,937 5,430

Income tax paid (12,136) (14,390) (45,548) (38,549) (46,100) Total Non-current Liabilities 7,746 10,290 9,591 9,232 9,132

Others 323 918 289 377 535 (02660 HK)

Cash from Operating Activities 66,242 125,244 257,649 296,162 340,894 Total Liabilities 81,912 144,676 166,896 185,572 217,564

Share capital 334 8,946 8,946 8,946 8,946

Dividend income 174 174 174 174 174 Reserves 252,136 586,369 840,726 1,131,298 1,456,748 禅游科技 Interest received 58 3,751 4,314 4,745 5,220 Total Shareholders' Equity 252,470 595,315 849,672 1,140,244 1,465,694

FV gains on financial assets at FVPL 7,104 6,757 7,433 8,176 8,994 Minority Interest 0 0 0 0 0

Change of PPE (2,248) (2,873) (6,321) (4,424) (5,088) Total Equity 252,470 595,315 849,672 1,140,244 1,465,694

Change in LT prepayments and others 0 (3,400) (3,740) (4,114) (4,525) Zengame [Table_FinancialRatio] Financial Ratios Additions to intangible assets 0 (600) (300) (345) (173)

Change in FVOCI (1,500) 26,286 10,374 8,170 6,238 2018A 2019A 2020F 2021F 2022F

Change in time deposits 0 (131,662) (26,332) (31,599) (37,919) Gross margin (%) 44.5 49.1 48.5 47.8 47.1

Change in FA at FVPL 17,963 (35,083) (32,680) (34,789) (42,914) Operating margin (%) 21.9 26.9 31.7 31.3 30.4

Others 15 107 (4,921) (246) (258) Net margin (%) 19.6 24.2 28.5 28.1 27.2

Cash from Investing Activities 21,566 (136,543) (51,999) (54,252) (70,252) ROE (%) 43.1 27.0 33.5 28.4 24.7

ROA (%) 32.5 21.7 28.0 24.4 21.5

Proceeds from issue of shares on IPO 0 203,210 0 0 0

Principal portion of lease payments 0 (2,198) (654) (720) (791)

Dividends paid (25,200) (45,258) (30,153) (33,537) (36,316)

Loans to the shareholders (52,800) 0 0 0 0

Shares repurchased 0 (2,072) (506) 0 0

Others (8,095) 0 0 0 0

Cash from Financing Activities (86,095) 153,682 (31,313) (34,256) (37,107)

Net Changes in Cash 1,713 142,383 174,337 207,653 233,534

Report

Cash at Beg of Year 9,342 11,052 161,843 338,937 550,311

FX change (3) 8,408 2,757 3,721 4,962

Cash at End of Year 11,052 161,843 338,937 550,311 788,807

Company Source: the Company, Guotai Junan International. [Table_CompanyRatingDefinition] See the last page for disclaimer Page 12 of 13 [Table_PageHeader] Zengame (02660 HK)

Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; 7 October2020 or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_IndustryRatingDefinition] Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [

or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[Table_DISCLOSUREOFINTERESTS]DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for GUOTAI JUNAN I (01788 HK),JINSHANG BANK (02558 HK),HAITIAN ANTENNA (08227 HK),Guotai Junan and its group

companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research

Report. (02660 HK)

(6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

禅游科技

DISCLAIMER

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Zengame Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

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