Q&A

Revenue from arcade games and online games accounted for 18% and 82% of the revenue in January, respectively. Online games are no longer distinguished by mobile games, and online games and licensing fees for Knights of Valour did not exceed 5%. The biggest market for arcade games used to be Mainland China. Competition in arcade games in China has become intense. We no longer have the overwhelming advantage we had in terms of overall business competition. Although the market is substantial, the competition has become intense. Therefore, only appropriate levels of revenue can be maintained in terms of overall business performance. The arcade and online revenue proportions in January can be used as a reference for future operations and there would be little deviation overall.

Alpha Children’s card games account for a low proportion and we have the Hero of Robots 2 children’s card game this year which account for a low proportion. The app has been the main source of growth since Q4 last year.
In terms of the rankings, the Company’s top five major apps in January were Golden HoYeah, Star 3 in 1, Mangan Dahen, Good Luck 777, and Ocean King. The expectations for each product line are ranked similarly with the highest expectations and chances of growth for those ranked on top and relatively lower growth for those ranked last.

The Company has continuously operated in its overseas market. However, overall business operations in the overseas market have been more difficult than we expected. However, we never give up on operations in other markets and we will continue to do our best. Despite our best effort, we have not seen results in Thailand and Malaysia.

Golden HoYeah has achieved significant growth since November last year and it has approached the average value in 2016. Although the number of players is half of the number of Fafafa, the paid rate and average payment per person has been higher than that of Fafafa. Therefore, we have approached the average revenue with Fafafa despite losing half the players.

We have only begun preliminary use of AI and we mostly use it for labeling, multi-faceted labeling, and CRM maintenance and use them with precision on the sales platform. The introduction of AI is effective on certain levels. However, the most important thing is the implementation of follow-up strategies. Correct labeling in games facilitates the use of sales and compensation strategies which are the same when applied to other products when projects introduce strategies for players. The software expenses for introducing AI into app games is insignificant for the Company and does not affect the Company.

Each game has a different group of players and it is not that easy to quickly transfer the same concepts to other groups of players. The main purpose of AI is to analyze players with the aim of duplicating successful concepts to other groups. AI is only a small part of the process, and success cannot be totally attributed to AI. It only helps with analysis.

Advertising for the Knights of Valour 2 has not officially begun in China and it will first be launched in Taiwan. We mainly operate IP licensing for the first generation of Knights of Valour in China.

What games are currently developed in collaboration with Tencent? Are operations performing poorly? Tencent's performance has not been good lately.

Hero of Robots 2 was launched in December last year in Taiwan and we plan to launch it in China in April this year. We have not produced large cartoons and we will produce 4 episodes of a mini animation series of approximately 12 minutes, expecting to complete them by July. We also expect to ship 1,000 units to China, but we will modify it depending on the reaction of the market. After all, the first generation of Hero of Robots has paved the way for Hero of Robots 2 and Hero of Robots 2 has many great features.

The quarterly revenue had been approximately NT$700 million or more and it is now approximately NT$900 million. Is it mainly attributed to Golden HoYeah? What is Golden HoYeah's share? Does Golden HoYeah contribute to 50% of the revenue?

According to the Company’s plans, revenue will grow as the number of players increases and apps will account for higher proportions. Gross margin will also grow and the overall numbers will be higher than those of 2018. The Company’s policy has always been to distribute profits to shareholders and cash dividend this year will be similar to the previous year.

We have Queen 3 which is expected to be launched this year. Other new product lines consist mostly of arcade games such as Monster Eye 2, VR Racing, and Hero of Robots 2 will soon be launched. Performance of the existing app products will be improved.
Mobile games and online games now account for a higher proportion of games. No new games have been launched for Star 3 in 1, Golden HoYeah, Good Luck777, Mangan Dahen, and Ocean King, but these games have become platforms for many games. We add dozens of games to the platforms every year to increase the competitiveness and contents of the platforms, so that players do not get tired of playing and we seek to add more methods for operations. When it comes to increasing payments, the tools may be important, but we dedicate a lot of effort on customer relations and customer management to categorize players, analyze players’ behavior, and stimulate player’s consumption. In terms of the structure of current and past products, the difference is that revenue has become relatively stable after these platforms are established. In the past, we were required to develop other markets after we achieved a certain level of saturation in market sales. However, the successful development of the platform has helped us maintain relatively stable maintenance and growth, and it has greatly increased the Company’s projected future revenue, providing us with more confidence in the Company's future operations.

The Company's main products are mostly leisure gambling products for which the Company has greater confidence. In terms of the products of other companies, they consist mostly of popular IP works in the era of browser games and online games. They naturally attract a number of fans when they are converted to mobile games and they have relatively greater chances of success. However, players must also accept these new products and they don't always succeed.

Children’s card games are product lines that require intensive operations. Armor Hero products have significant standards and we have higher expectations for Hero of Robots 2, mainly because of the reputation achieved by the first generation of Hero of Robots. In addition, we also work with Wahlap which currently has the largest operations in children’s card games in China.

Licensing fees are only collected for deliveries and the revenue is insignificant. Revenue from children’s card games will no surpass the top five APP product lines.

The Company’s Golden HoYeah is different from other slot machines. Golden HoYeah has fishing games, arcade systems, and a mall that players can purchase tools from the mall. We design different gift packages for different players, and design tools for distribution for slot machines. With careful CRM operations, we have achieved many breakthroughs in the game.

We have new a few major arcade game products launched this year such as VR, Hero of Robots 2, Monster Eye 2, and Speed Driver 5. In addition, we also launched the ticket progressive JP in China, and fishing progressive JP in the United States.

2018 was a low point for arcade games. In addition to a reduced number of new venues in China which affected consuming capacity, the Company’s major products were also not launched on schedule and they affected the performance in arcade games in 2018. After the major products are launched in 2019, we should achieve good performance in replacement of machines in old venues even if there are fewer new venues. We expect to achieve better performance in 2019 compared to 2018 but we cannot provide a firm estimate of the level of growth.

We have not yet achieved stable growth in arcade games in Malaysia, but the Company will continue to work hard on mobile games.

There are more variables for arcade games and we expect overall revenue from arcade games to exceed revenue in 2018. However, the amount of growth remains unclear. Apps have accelerated growth and the proportion will be increased. It is less certain whether arcade games can achieve growth from levels in 2018.

The overall arcade game market did not decline. Instead, the Company has reduced its efforts because of fierce competition. The Company chooses product lines in which it is competitive for operations. In addition, as sales of major products scheduled for the postponed to launch in June and July this year, also as arcade games generally perform better in the second half of the year compared to the first half, arcade game machines will have better performance in the second half of the year.
Revenue from arcade games in the first half of the year declined by more than NT$60 million compared to last year. However, overall sales of arcade game machine in July amounted to more than NT$130 million. Therefore, the sales volume in July alone could make up for overall deficiencies in arcade game machines in the first half of the year. However, July has always been a busy month for arcade game machine shipments, and many shipments of important product lines are in the second half of the year. As a result, July should be considered as a peak. However, changes in the future would be determined by market response which would be an important factor for determining whether large-scale shipments can be achieved in the second half of the year. We cannot determine whether there can be major breakthroughs in the second half of the year. However, as major products are scheduled for launch in the second half of the year, we expect to achieve higher shipments for these products in the second half of the year.

Our current view is that it will be better than the second quarter. The visibility of machines means the promotion of products on the market. High product acceptance rate implies more purchase orders. Therefore, only purchase orders can help us predict market response, but we cannot confirm the actual quantity with precision.

The response to Ultra Moto VR and Speed Driver 5 onsite has been overwhelming and the market for fishing games has always been great.
The main market for fishing games is in the United States; the main markets for simulation games is mainly China and Southeast Asia; the main markets for card games is Taiwan and China.

300 units were launched in Taiwan in November last year and 1,000 units were launched in China, but only 800 or more units were placed in the market. The game currently performs better in Taiwan than in China. As the product was only launched in China in mid to late-April, we are still optimizing and adjusting the products. We hope that game optimization and the launch of animation will contribute to better performance in the fourth quarter.

The animation will be played in Taiwan starting from August 16th . The first session will begin in China on August 23rd and the second session will begin in October. The Hero of Robots animation remains in its preliminary stage and the IP recognition remains low. Our current main goal is to increase exposure and the cash realization has yet to begin. We have less experience in this respect and we cannot promote the IP like other dedicated companies in a planned manner and we will try to increase realization in this respect.

Current response to cards has been average, and the growth is slower than expected. We planned to launch the machines in Taiwan, thereafter start shipping 1,000 units to China immediately. However, competition now appears to be more intense in China. Therefore, we began to adjust product contents after shipping 800 units. We currently have no plans for rapid expansion in the market and we will wait till adjustments are made for the product line before continuing. In terms of these three product lines, the fishing games have received great response in the United States that account for approximately 30% in terms of revenue in July while simulators account for approximately 60%. As card machines were shipped before this period, the proportion would be lower.

We will provide a brief analysis for the five major product lines.
We have set a goal to achieve 3% paid rate for Golden HoYeah, and we had achieved this rate on individual days. However, the daily average payment rate may be lower. Markets are bigger for certain app categories such as Golden HoYeah which targets the international market. Some products are focused on the market in Taiwan such as Star 3 in 1, Good Luck777, and Mangan Dahen. Fishing games target the market in China. Therefore, Golden HoYeah has achieved higher growth in terms of DAU, paid rate, and ARPU because it has a bigger market. In addition, as the team has conducted more research on paid rates, the Company has achieved faster growth for apps in the past few months due to positive competition between the teams. These measures have been effective.
The Company’s revenue from the five major apps are as follows: Golden HoYeah still ranks first; Star 3 in 1 still ranks second; Mangan Dahen and Good Luck777 compete for the third place; and Ocean King ranks fifth. The Company currently experiences rapid growth from “Golden HoYeah” among the five product lines. Revenue from July has doubled and the source of income accounts for a high proportion of Golden HoYeah. “Star 3 in 1” has achieved more stable growth and it has little room for explosive growth. It has continuously grown each month. The game with weaker growth this year is “Mangan Dahen” which has been maintained at the same level since the beginning of this year. “Good Luck777” started with a lower baseline at the beginning of the year and has grown approximately 150%. “Ocean King” also started with a lower baseline and has grown by 50% to 100%. Therefore, all five product lines have achieved growth and contributed to overall business performance.

AI has been preliminarily adopted for Star 3 in 1. AI has generated a huge buzz in recent years, and it is almost regarded as a cure for everything. In fact, we really don’t have to pay attention to whether it has such special powers because AI helps us analyze player’s behavior; the key is whether data after the analysis can be used by the Company. Therefore, we should not be misguided into believing that AI would generate exponential growth and rapid revenue. It is not that easy. AI helps us make decisions for markets and players; the key is how we implement AI in projects.

Golden HoYeah's markets are ranked as follows: China, Taiwan, United States, Japan, and Malaysia. In addition, Golden HoYeah’s team has accumulated more experience in team work, data analysis, and AI introduction than other teams in the Company. The leader's example will be used as reference for other projects to help the newer teams grow. Good Luck777 has achieved relatively good retention rates due to positive internal competition and the introduction of major machines which are the reasons for Good Luck777’s continuous growth. Ocean King has achieved continuous growth in the market in China in the past few months and we have high expectations for it.
As marketing and promotion budgets have been planned for Star 3 in 1 each year, our next strategy will focus on celebrity endorsements. Due to the introduction of data analytics, we will continue to think of ways to improve the paid rate as well as seek ways to retain more existing players in response to the loss of players. We will also add multiple new games in the Star 3 in 1 all-in-one platform to satisfy the requirements of players in Taiwan. In addition, as Mahjong and chess games are quite popular in the Chinese-speaking area, we hope to have the opportunity to go beyond Taiwan and enter the market in China. Mangan Dahen had entered the Taiwanese market before Good Luck777. The original operating philosophy, data analysis, and business model are currently being adjusted. We plan to introduce related technologies and applications to help with the payment and retention rate. As for other new product lines, we will continue to launch new games in two-month cycles, improve the contents and scale of the platform. Products such as Mangan Dahen have the opportunity to enter foreign markets and we are actively developing these products for launch in the Southeast Asian market.
We have high expectations for all product lines and we hope to achieve growth each month. All teams of the Company are doing their best to maximize the performance where as they focus on two elements: the first is how to make a product better and the second is finding a bigger market to explore. These measures will continue to be adopted by the Company, but we cannot guarantee that revenue will increase once we’ve optimized products and entered other markets. Nobody can be sure of this but we will keep doing our best. The process of growth starts with a low baseline with bigger room for continuous growth. However, once growth has passed a certain threshold, it is difficult to continue growth at the same pace. We hope to continue growth but we cannot predict the timing for the slowdown and decline of a product. If you have observed the Company’s revenue, you will see that it grew in March, dropped slightly in April, and continued to grow from May to July. However, we cannot guarantee that it would still go up in August because its baseline is already quite high. It may decline in August but we hope it will go up again in September. That’s the way the Company’s growth curve may be.

We can see the changes in the AI data but it is difficult to predict how an increase in a certain figure will cause changes in another figure.

Nothing is limited. The question is whether you can achieve breakthroughs with your product. The answer to this question is also determined by two important factors. The first is whether the product is competitive and the second is whether it can break into other markets. There is no real upper limit. According to information provided by the General Manager Mr. Chiang, the Company only has approximately 1% of the market share in related apps so there is the other 99% we can target. It all depends on whether you have the capabilities to take the market.

Taiwan still accounts for a large percentage and the main source of revenue for Star 3 in 1, Mangan Dahen, and Good Luck777. These three major apps account for more than 30% of total revenue.
We have achieved more breakthrough in Golden HoYeah and Ocean King this year. The proportion of revenue from the two games has improved in China, but it remains relatively low.

I don’t think we can at this moment. There is currently no chance of recovery in Malaysia or Italy within a short time. There may be more changes in certain laws in Italy and it would be difficult to duplicate past success. The Company currently does not view these two markets as important markets for arcade game machines.

The Company’s overall performance in the first half of the year exceeded expectations and we have lobbied for better benefits for employees in the managers’ meeting and the Board of Directors to reward employees for creating good performance for the Company in the past six months. We therefore distributed travel allowances and increased the performance bonus and employee remuneration appropriation ratio in July. The expenses therefore increased and the overall profits before tax dropped. Every company seeks a balance. Employees have worked hard for our achievements, we hope that appropriate levels of encouragement would help motivate employees and encourage them to perform better. I believe that the policy would create mutual prosperity for shareholders in the long run.

It takes time for marketing personnel to understand products and R&D. It also takes time for R&D and product personnel to understand marketing. Once their efforts are connected, the performance will improve. We will reconsider whether to spend the budgets we created and reconsider the places of deployment to maximize effects. These methods are used to reduce overall marketing expenses. That is the main reason.

Our team has actually considered this issue. Star 3 in 1 is a local Mahjong game which employs Mahjong rules unique to Taiwan. We have worked with Tencent in China in the past, but we did not succeed because of the incompatibility of the use of 13 tiles or 16 tiles in Mahjong. Our product could not be integrated into Mainland Chinese culture. However, the team has not given up. I believe that different regions have similar rules for related chess games and we can perhaps continue to try different things. We can, for instance, show ads in other regions and observe the effects, whether there are too many similar products or whether we can localize and adjust products to enter the markets. These are the teams’ current tasks.
We have different things to consider for arrangements of the Company’s internal product lines. For instance, Golden HoYeah's original game structure was designed to be a product internationally. Star 3 in 1 started in Taiwan and some aspects of the product have been more local. When we begin planning a product, we would determine the product's market. We would naturally think about whether we have the opportunity to expand to other countries. Based on our past experience, direct duplication of a game to another market has rarely succeeded.

The tax rate is approximately 16% to 17% each year. The government currently stipulates 20%, but the Company has tax credits for investments and the offset amounts are different for each year.

The main reason for the current R&D personnel expansion is to expand into more markets, and new personnel are not confined to a single discipline. They include software, hardware, art, and planning. The Company’s demand for AI talents is actually not that high.

Every company is unique. Other competitors mostly have a single product lines, and specialize in a sector that corresponds to one of our five main apps. Our company has a wider product range and we are the only company that continue to produce arcade game machines. Therefore, we rarely compare ourselves with companies that have singular product lines.

We have discussed this in an internal meeting, and we currently have no such plans. Based on past dividend policies, we will distribute most of our dividends to shareholders, and the direction of the policy will not be changed. Therefore, the more profits the Company earns, the more dividends we have for distribution.