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Giant Interactive Group Inc. (GA)

Q1 2011 Earnings Call

May 12, 2011 09:00 PM ET

Executives

Rich Chiang – IR Manager

Eric He – CFO

Wei Liu – President

Xuefeng Ji – VP, Product Development, Quality Control and Project Management

Analysts

Jenny Wu – Morgan Stanley

Lisa Yuan – Goldman Sachs

Mark Marostica – Piper Jaffray

Eddie Leung – Bank of America/Merrill Lynch

Wendy Huang – RBS

Andy Yeung – Oppenheimer

Gary Ngan – UBS

Adam Krejcik – Roth Capital Partners

Atul Bagga – ThinkEquity

Vincent Sun – Mirae Asset Securities

Presentation

Operator

Good morning and good evening, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group’s First Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent background noise. 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 Manager of Giant Interactive.

Rich Chiang

Good morning, ladies and gentlemen. Welcome to the first quarter 2011 earnings conference call for Giant Interactive Group. With me today are Ms. Wei Liu, President; Mr. Eric He, Chief Financial Officer; and Mr. Xuefeng 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, Mr. He 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 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 include, among others, statements regarding our continued efforts to increase shareholder value through strategic investments and expansion or adjustment of game content and features.

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 and uncertainties related to the progress, timing, costs and results of game testing and product development. Competition from other online game companies and the additional risks discussed in filings with the Securities and Exchange Commission, including our annual report on Form 20-F filed on June 7, 2010.

All forward-looking statements are qualified in their entirety by this cautionary statement, and Giant undertakes no obligation to revise or update this information to reflect events or circumstances after the date hereof. In addition, please note that references in the presentation to dollars refer to U.S. dollars.

Now, I’d like to pass the call over to Eric He, our Chief Financial Officer.

Eric He

Thank you, Rich. Good morning and good evening, everyone. Thank you for joining us today. Our strong results for the first quarter extended our recent trend of increasing top and bottom line results. As we continue to benefit from our successful game segmentation and portfolio diversification strategies as note in our earnings release, our core online gaming business performed well, supported by the increasingly positive response through ZT Online 2 as well as steady contribution from our existing games.

We began official closed beta testing of ZT Online 2 in the second quarter and recently achieved the PCU of 300,000. I am pleased to report that we reached this milestone with minimum cannibalizations from our – from the original ZT Online, highlighting the strong interest in growing potential of this new game.

We are very pleased with the progress of ZT Online 2 thus far, and we expect to build on this positive momentum in the coming quarters. We also benefit this quarter from an increase in other revenues which was related to our first-person shooter game that we developed as a result of government grant. We believe that being awarded this project, demonstrated our team’s technical expertise in this genre in China. We expect this revenue to decrease in the end of the second quarter, but we plan to leverage the technology used from this project to develop future MMO games.

In addition to encouraging response to ZT Online 2, we continued to make steady progress on our self-developed and licensed pipeline games, which should lead to additional value drivers in 2011. In short, we are again developing a consistent track record of execution with improving financial and operational results and effective cost controls. And we believe we have the right strategy in place to drive further growth in the years ahead.

With that I will move onto our key operational metrics on slide six. Total Active Paying Accounts or APA grew 1.5% sequentially and grew 29.6% year-over-year to 1.779 million. Average Revenue Per User or ARPU was RMB216 million, up 0.5% over last quarters and down 1.7% over the first quarter of 2010. Average Concurrent Users or ACU was 586,000 or 0.4% sequential increase and 0.3% decrease year-over-year. Peak Concurrent User or PCU was up 11.9% sequentially and up 18.9% year-over-year to 1.916 million.

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