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Giant Interactive Group Inc. (GA)

Q3 2011 Earnings Call

November 1, 2011 9:00 PM ET

Executives

Richard Chiang – Director, IR

Wei Liu – President

Jazy Zhang – CEO

Analysts

Timothy Chan – Morgan Stanley

Mark Marostica – Piper Jaffray

Tjeng – Macquarie

Gary Ngan – UBS

Thomas Chong – RBS

Jin Yoon – Nomura

Jialong Shi – CLSA

Jenny Wu – Citi

Adam Krejcik – Roth Capital Partners

Atul Bagga – Lazard Capital

Andy Yeung – Oppenheimer

Dick Wei – JP Morgan

Presentation

Operator

Good morning and good evening ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group Third Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent background nose. After the presentation, there will be a question and answer session. (Operator Instructions)

Now, I’d 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 2011 earnings conference call for Giant Interactive Group. With me today are Ms. Wei Liu, President; Ms. Jazy Zhang , 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, Ms. Zhang 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 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, intend, plans, beliefs, estimates and other statements, and include among others, statements regarding our ‘s expectation of sequential top line growth in the fourth quarter of 2011 future prospects of the company and the Chinese online game industry, future financial position of the company, the ability for the company’s new web game projects to diversify its user base. The investment strategy of the company and the timetable of – for engineering testing, close beta testing, open beta testing, introduction and commercial launch of the various (inaudible) game pipeline.

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, the deterioration in the performance of the ZT Online 1 Series, failure of ZT Online 2 to grow as expected, unexpected delays in developing expansion packs or in the timetable for testing, introduction and launching of games, the company’s dependence on the ZT Online 1 Series games, which currently account for the majority of the company’s historical net revenues.

The company’s limited operating history and unproven long-term potential of its online game business model. The uncertainties with respect to the PRC legal and regulatory environments and the volatility of the markets in which the company operates. 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 by 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.

I’ll like to begin the call by reading an introductory remark on behalf of our President Miss. Wei Liu.

Wei Liu

Good morning ladies and gentlemen. Thank you for everyone for joining us today. As you may have seen from our earnings release, we delivered a solid quarter with both sequential and year-over-year growth continuing our steady trend of financial and operational commitment throughout 2011. Our results were supported by continued growth and the online game industry in China despite increase in competition among industry players and the launch of numerous new game titles in recent months.

We believe our ability to deliver steady growth despite strong competition extends from the success of our game segmentation and focused strategy as well as the fundamental strength of our internal development capabilities. The success to date of our flagship games ZT Online 2 demonstrates these capabilities and indicates our strategy is fundamentally found. ZT Online 2 launch into open beta testing in September and reached a new high of over 435,000 PCU a significant achievement of which we are proud.

We are also continuing to attract a broad and diverse base of playing players across our ZT Online family of games resulting in a sequential and year-over-year increase in active paying accounts and average concurrent users. The improvements in these key financial, key performance metrics demonstrate that we are succeeding in our efforts to broaden and deepen our player. (Inaudible) supported by the continuous updates in additions of new game play features to keep players engage.

While we are pleased with our performance to-date we remained focused on the continued development of our existing games and game pipeline. We are managing our expenses to maximize profitability. We have number of games in the pipeline that are nearing key development milestones and we have been actively seeking gamers as fee back from the various phases of testing and incorporating them into these games to improve game play and functionality.

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