Nexon Expects ‘Robust’ Demand for Online Games in China
Nexon Co. (3659), which developed China’s second-biggest online game for Tencent Holdings Ltd. (700), forecast “robust” demand from players in the world’s biggest Internet market, contrasting with analysts’ predictions of weaker growth.
“We like the market for games in China,” Owen Mahoney, chief financial officer at Nexon, said in an interview in Hong Kong yesterday. Tencent, China’s biggest Internet company, renewed a license for Nexon’s “Dungeon & Fighter” game last year, and demand for the title helped the Tokyo-based company boost sales in China 89 percent in the first quarter, he said.
Demand in China last quarter prompted Nexon to raise its annual profit forecast 13 percent and is a harbinger of online game sales at Tencent, which reports first-quarter results tomorrow. The Shenzhen, China-based company surged the most in more than two weeks in Hong Kong trading, and was the fourth-best performing stock in the benchmark Hang Seng Index.
“Tencent is able to distribute its games to the large number of people who use its messaging services,” said Marvio Lo, who rates Tencent buy at Mizuho Securities in Hong Kong. Nexon’s performance in China offers a partial guide to Tencent’s online games operations, Lo said.
Tencent rose 2.1 percent to HK$230 at close in Hong Kong, the biggest gain since April 30. The stock has gained 47 percent this year, outperforming Chinese Internet rivals including Baidu Inc. (BIDU) and NetEase.com Inc. (NTES) Nexon fell 1.3 percent to 1,427 yen in Tokyo today.
“First quarter surprised us, and we had to raise our guidance,” Mahoney said. The Chinese online games market is “very robust,” and Nexon expects to achieve growth that outpaces the overall market, he said.
China’s online games market may expand 12 percent this year to 46.5 billion yuan ($7.4 billion), slowing from 18 percent in 2011, according to a January forecast by research company iResearch. Demand for some traditional games played on personal computers is slowing in China, Mizuho’s Lo said.
“Dungeon & Fighter,” a multiplayer action game, is China’s second-highest grossing title, Mahoney said. Tencent also offers dozens of other games including “Cross Fire” and “League of Legends.”
Nexon also licenses games to Chinese companies including Shanda Games Ltd. (GAME) and Tiancity.com, Mahoney said.
There are “a lot of opportunities” for acquisitions and investments in Asia, North America and Europe, he said. Nexon is interested in investing in companies that develop games for Facebook Inc. and mobile-phone users, the CFO said.
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