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Giant Interactive Group Inc. (GA)

Q3 2012 Earnings Call

November 14, 2012 8:00 PM ET

Executives

Richard Chiang – IR

Jazy Zhang – CFO

Xue Feng Ji – VP, R&D

Wei Liu – President

Analysts

Gillian Chung – Morgan Stanley

Karen Tai – Piper Jaffray

Martin Bao – CICC Martin

Chris Lai – Bank of America Merrill Lynch

Gloria Yu – Oppenheimer

William Huang – Barclays

Jia Long Shi – CLSA

Atul Bagga – Lazard Capital

Adam Krejcik – ROTH Capital Partners

Gregory Zhao – Citigroup

Presentation

Operator

Good morning and good evening, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group’s Third Quarter 2012 Earnings Conference Call. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question.

Now, I would like to transfer the call to the moderator, Mr. Rich Chiang, Investor Relations Director of Giant Interactive.

Richard Chiang

Good morning, ladies and gentlemen. Welcome to the third quarter 2012 earnings conference call for Giant Interactive Group. With me today are Ms. Wei Liu, President; Ms. Jazy Zhang, Chief Financial Officer; and Mr. Xue Feng Ji, Vice President of Research and Development.

As we proceed through our prepared remarks, we will refer to our results presentation, which can be downloaded from our website at www.ga-me.com. Following the remarks, Ms. Liu, Ms. Zhang and Mr. Ji will be happy to take your questions.

Before we continue, I would like to remind you that statements on this call that are not strictly historical in nature constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates and similar statements and among others, include statements regarding the company’s expectations for sequential growth in the fourth quarter 2012, the ability of the company to induce new game types to maintain its growth rate and profitability that are exceeding the industry average, the ability of the company to successfully diversify its revenues, the sustained progress and performance of ZT Online 2 after the launch of its first expansion pack and micro-client version, the sustained growth and diversity of the company’s user base after launch distribution and testing of pipeline games including MMO games.

They’re a part of the company’s portfolio diversification strategy. The ability for World of Xianxia to become another blockbuster MMORPG of the company, the ability of the company to implement a strategy in connection with webgames, such as expected commercial launches of Genesis of the Empire and The Sky, and the timetable for testing and releasing new games and expansion packs in the company’s game pipeline.

These forward-looking statements are not historical facts, but instead represent only our belief regarding future events, many in which by their nature are inherently uncertain outside of our control. Our actual results and financial condition and other circumstances may differ possibly materially from the anticipated results and financial condition indicated in these forward-looking statements.

Among the factors that could cause our actual results to differ from what we currently anticipate may include a deterioration in the performance of ZT Online 1 series, and ZT Online 2. Unexpected delays in developing expansion packs or in the timetable for testing and launching our games, our dependence on ZT Online 1 series and ZT Online 2, which currently account for the majority of our historical net revenues, failure of our webgames, MMO pipeline games, first FPS game or other diversification or distribution efforts to grow as successful as expected, our uncertainties with respect to the PRC legal and regulatory environments and the volatility of the markets in which we operate.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results of Giant to be materially different from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, risks discussed in filings with the Securities and Exchange Commission including our Annual Report on Form 20-F filed on April 23, 2012, and in our amended annual report on Form 20-FA for the fiscal year 2011. All forward-looking statements are qualified by this cautionary statement, and Giant undertakes no obligation to revise or update this information to reflect events or circumstances after today.

In addition, please note that references in the presentation to dollars refer to U.S. dollars.

Now, I would like to turn the call over to our CFO, Jazy Zhang. Jazy?

Jazy Zhang

Thank you, Rich. Good morning and good evening, everyone. I will begin by reading opening remarks from President Liu.

I’m very pleased with our third quarter performance which reflected some preliminary results from our efforts put in last year to diversify our portfolio and revenue stream by developing new games. Entering new game genres, attracting popular games from overseas to publish in China and extending our games into overseas markets. Our largest portion of revenues still came from the ZT Online 1 series, but our new blockbuster ZT Online 2 has become a major revenue growth driver, and we are delighted to see contributions from new games such as the micro-client version of ZT Online 2, Elsword and Allods Online.

This quarter, the ZT Online franchise remain our key growth driver. New contents for the various versions of ZT Online 1 were added, and ZT Online 2 continue its momentum from the launch of the first part of its new expansion pack in August. We expect these two games to continue to do well in the near term, especially after the launch of their new expansion pack in the coming month.

Read the rest of this transcript for free on seekingalpha.com