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Giant Interactive Group Inc (GA)

Q2 2011 Earnings Call

August 8, 2011 9:00 PM ET

Executives

Richard Chiang – IR Manager

Eric He – CFO

Jazy Zhang – CFO

Analysts

Thomas Cheng – RBS

Timothy Chan – Morgan Stanley

Gary Ngan – UBS

Mark Marostica – Piper Jaffray

Vincent Sun – Mirae Asset

Chao Wang – Bank of American Merrill Lynch

Andy Yeung – Oppenheimer

Adam Krejcik – Roth Capital

Presentation

Operator

Good morning and good evening, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group Second Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background nose. 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’d like to transfer the call to the moderator, Mr. Rich Chiang, Investor Relations Manager of Giant Interactive.

Richard Chiang

Good morning, ladies and gentlemen. Welcome to the second 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 Xi, 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. Xi 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 historically in nature constitute forward-looking statement 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, intend, plans, believes, estimates, and other 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 states 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 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 17, 2011.

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, our Chief Financial Officer.

Eric He

Thank you, Rich. Good morning and good evening, everyone. Thank you for joining us today. We delivered another quarter of sequential growth both operationally and financially, supported by our segmentation strategy and continued development of our pipeline. Our results continue to benefit from strong performance of ZT Online 2, which commence official closed beta testing in April 2011 and deliver a PCU of more than 300,000 for the second quarter.

We launched some marketing initiative in support of ZT Online 2 in the second quarter and are very pleased with the response from gamers thus far. We remain confident in continued growth potential of ZT Online 2, as we enter the second half of the year.

In addition to ZT Online 2, we continue to attract both new and returning experienced gamers through the rather ZT Online family of games, including ZT Online, ZT Online Classic Edition, ZT Online Green Edition. Through constant update and additions of new features, we are successfully keeping gamers engaged, which in term has helped support our steady improving operational metrics. We also continued to make progress on our new game pipeline including both self-developed and license games, and expect certain gains to reach key development milestone in the second half of the year.

As a result of our improving operating and financial performance we are happy to announce a significant special cash dividend of $3 per share in light of current capital market environment facing all U.S. listed Chinese companies we believe this special dividend provides a clear demonstration of our confidence in underlying strains of our business and allowed us to provide a significant return of capital to our loyal shareholders. Even after payment of this special dividend we will continue to maintain a strong debt free balance sheet with approximately $238 million or approximately $1 per share in cash and cash equivalents. Free cash flow also continued to remain strong leaving us well positioned to fund future growth opportunities.

With that, I will move on to our key operational metrics on slide six. Total active paying accounts or APA grew 12.1% sequentially and grew 39% year-over-year to 1.984 million. Average revenue per user or ARPU was RMB212, down 2% over last quarter and down 5% over second quarter 2010. Average concurrent user or ATU was 654,000 or 11.6 sequential increase and 2.4% decrease year-over-year. Peak concurrent user or PCU was up 10.8% sequentially or up 28.1% year-over-year to 2.112 million.

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