Gala Technology (02458.HK): Tech-driven game developer reaps rewards with high-flying products

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There is a reason why Gala Technology, listed on the Main Board of the Hong Kong Stock Exchange (HKEX:2458), attracts the attention of wise investors. The young, tech-driven company is focused on a market niche and features a compact and solid product range.

With approximately RMB354.4 million (US$48.6 million) in revenue for the six months ended June 30 or an increase of RMB59.6 million (US$7.35 million) compared to the same period last year, a gross profit increased by approximately RMB50.3 million (US$6.9 million) to reach RMB199.2 million (US$27.32 million). A net profit increased significantly by approximately 93.6 per cent to approximately RMB39.4 million (US$5.4 million) during the period, its recently-released interim report appeases investors.

Shenzhen-based Gala Technology was founded by sports and technology enthusiasts in 2013. They take pride in their pledge to “enhance sports with technology for more fun.” The relatively limited, albeit growing, product range is, therefore, a strategy by design.

The group operates in the mobile sports game, or SPG, market. Its core product range comprised five game products: the Football Master, the NBA Basketball Master, the Football Champion, the Total Football by the end of 2022, and the MLB Clutch Hit Baseball launched in the second half of 2023.

In the pipeline are three major games: an action-based basketball game, an action-based American football game, and a new take on a leisure game that is fishing.

That Gala Technology built a stranglehold in the SPG market yields some excellent market performances. In terms of revenue, in 2021, the group ranked second in China’s SPG and mobile sports simulation game markets, representing a market share of approximately 7.9 per cent and 12.4 per cent, respectively. In the first half of 2023, the group’s market ranking in China still firmly stood at second place.

SPG products have long life cycles and offer the developer consistent growth potential over a more extended period.

As the group’s first released game in 2014, the Football Master continued to go strong, generating substantial income for the group along with the NBA Basketball Master launched in 2017, according to the group’s last annual report.

Meanwhile, the Football Champion launched in 2020 recorded rapid revenue growth in 2022 and the first half of 2023, thanks to an excellent performance in China and the overseas markets. As the game continues to iterate, the stickiness and payment performance of the users are continuously improving. The added feature Superstar Career Mode, which allows users to experience a top footballer’s path to stardom, received widespread acclaim from users.

Featuring some of the group’s leading technologies, Total Football unveiled in 2022 represents the first successfully launched action-based football game product developed by a Chinese company. It achieved rapid growth in revenue scale in the first half of 2023 in mainland China. The game will expand into crucial overseas markets in the fourth quarter of 2023 and is expected to contribute more to the group’s revenue.

Gala Technology’s solemn pledge to bring great gaming experiences to sports fans to a great extent has an impact on its game development and business operation plans. Since its first launched game, the group has sought official cooperation with international sports associations. The Football Master, the Football Champion, and the Total Football already featured over 10,000 real football players from intellectual property rights holders and licensors, including professional football players union FIFPro and major European football clubs with significant fan bases, such as Barcelona, Real Madrid, Bayern Munich, and Manchester City.

Likewise, thanks to the NBA official license, the NBA Basketball Master and the future action-based basketball game can integrate the latest player stats and season schedule into the game for better user experience. For the MLB Clutch Hit Baseball game, Gala Technology similarly acquired IP licenses from the Major League Baseball and the Major League Baseball Players Association.

An advantage of consolidating the official cooperation of major licensors worldwide is the logical creation of an entry barrier to the game products concerned. The group’s game products are thus able to offer the kind of gaming experience to sports fans like nothing else in the market.

It is worth noting that Gala Technology has its self-developed AI engine, 3D stadium real-time replication, and other AI technologies that have undergone several years of generational upgrades. The group believes its AI technologies, such as the unique Arena4D technology for real-time stadium replication, are now ahead of its competitors.

The Arena4D technology, it must be added, does more than the creation of 3D characters and scene generation in games; it also completes real-time computing, modeling, and photo-quality rendering of virtual spaces and characters by capturing video of the events, reproducing a 1:1 arena in real-time with minimal delay. In addition, it captures the players’ motion. It incorporates professional movements into the game’s player movement database, thus enhancing the realism of the game, and significantly reducing the cost of hiring professional players for the motion capture.

Ever a technology company, Gala Technology increased its input in technology and product research and development in 2022 and in the first half of 2023. R&D expenditure amounted to RMB87.0 million (US$11.9 million) and RMB37.5 million (US$5.1 million), respectively, for 2022 and the first half of 2023, or a hike of 38.8 per cent and 34.2 per cent, respectively, compared to the corresponding periods.

The added investment in areas such as AI algorithms and graphic rendering technology will likely contribute further to the competitiveness of the group’s products.

The group’s strategy of “single technology, diverse products” represents a technology barrier in the sports game sector, thus enabling the group to become a competitive SPG developer and operator as it is today.