Mainland mobile game developer Archosaur Games has filed for an initial public offering in Hong Kong, aiming to raise up to US$200 million (HK$1.56 billion).

The issuer has invited Tencent (0700) as its investor in the Series B financing before the IPO process. Tencent holds 17.51 percent of the company's shares.

Founded in 1997, the company's predecessor, Archosaur Studio, had been merged under Perfect World Group in 2004 before it was split out six years ago. The Shenzhen-listed game developer holds 23.1 percent shares in Archosaur Games.

Archosaur mainly focuses on the development of mobile massively multiplayer online role-playing games (MMORPGs), including development and licensing business, and integrated game publishing and operation business.

Four of the company's games ranked among the top 20 mobile MMORPGs as measured by gross billings in mainland China from 2017 to 2019, according to Frost & Sullivan. Among them, Dragon Raja ranked first among all mobile MMORPGs in terms of average monthly active users (MAUs) last year, says the company.

Archosaur ranked fifth among all Chinese mobile game developers in terms of total gross billings from self-developed games in mainland China in 2019, according to Frost & Sullivan.

Revenue slumped by 33.54 percent to 870.1 million yuan (HK$951.59 million) in 2018, a time when the government tightened online game restrictions to curb game addiction among teenagers, and grew by 22.65 percent to 1.07 billion yuan in 2019.

It recorded a net profit of 119.3 million yuan, after reporting net losses of 159.2 million yuan in 2017 and 74.5 million yuan in 2018. Research and development expenses dropped by 14.54 percent from 2017 to 389 million yuan last year.

Tencent was the biggest customer of Archosaur during 2017 and 2019, generating 39.6 percent, 40.8 percent, and 55 percent of the total revenue each year, respectively, according to the prospectus.

The two companies have jointly published and operated four games in the mainland, and Archosaur has entered into agreements with Tencent on March 27 in relation to the exclusive publishing and operation of three of its games that are currently in the pipeline, it says.

The proportion of total revenue from the five biggest customers of Archosaur has grown from 65.5 percent in 2017 to 75.9 percent last year. The company warns any loss or deterioration of its relationships with these customers may result in loss of game players and revenues.

Meanwhile, a significant part of the company's revenue relies on a few landmark games in the past three years, including Fantasy Zhuxian, The Castle in the Sky, King of Kings/World of Kings, Dragon Raja, and Love & Sword, says the company. This group of games accounted for 91.5 percent of the company's revenue in 2019.

Besides, it is noticeable that the company's average MAUs have shrunk 19.77 percent from 4.29 million in 2017 to 3.44 million last year, while monthly paying users have slid by 23.13 percent to 501,533 last year, along with decreases in MAUs for major games through their life cycle, which is around three years.

On the other hand, the company has been expanding its business to overseas markets, with the proportion of revenue from markets outside mainland China rising from 17.8 percent in 2017 to 32.2 percent in 2019.

Separately, Dragon Raja, launched this year, has ranked first among mobile MMORPGs and second among mobile RPGs based on iOS App Store downloads in the United States and sat among the top 10 mobile games in eight regional markets in Europe, says the company.

The issuer intends to use a part of the net proceeds raised to enhance development capabilities and technology, expand its game portfolio, as well as to expand its game publishing and operation business, particularly in overseas markets.

Another part of the proceeds will be for funding strategic acquisitions and investments, expanding intellectual property reserve and enriching content offerings, while the rest is for working capital and general corporate uses, says Archosaur.

Mobile game maker rides on popular titles