Sugar Dragon IPO to Stir Appetite for Candy Crush Confectionary
Candy Crush Saga is estimated to make more than US$600,000 per day
One of the most known and addictive games on Facebook is King.com’s “Candy Crush Saga” which is estimated to make more than US$600,000 per day. While the game is played around the world it is particularly famous in Asian countries, where a recent survey has found that every seventh person in Hong Kong plays the addictive smartphone game. The Candy Crush Saga was released on Facebook in April 2012 and as a mobile application for smartphones in November 2012 by King Digital Entertainment. King Digital went public in 2014 to list on the NYSE in a US$7billion initial public offering, only to be recently acquired by Activision Blizzard for US$5.9billion.
As with every successful franchise, the sale of the primary product is usually accompanied by complimentary merchandising. Hong Kong based Okmno Asia Limited has a licensing agreement with King.com to manufacture and distribute ‘Candy Crush’ branded confectionary in Asia. Okmno is a confectionary wholesaling business with manufacturers in China and Germany and Okmno has sold over 26 tonnes of ‘Candy Crush’ branded confectionary in South Korea and Taiwan to date. The license also covers Hong Kong, Macau and mainland China.
The coming listing of Sugar Dragon Limited provides investors with speculative exposure to demand for the ‘Candy Crush’ branded confectionary products in Asia as the company holds a 72.5% interest in Okmno. Sugar Dragon seeks to raise $3.2million to fast-track production and marketing of its confectionary products. The funds will be used to undertake further product designs, increase production, develop marketing channel partnerships but also to explore new opportunities.
Even though the licensing agreement is non-exclusive, Okmno is currently the only licensee in the region, resulting in a competitive advantage for being the “first mover”. China is a growing market for confectionary products as the country continues to evolve to a consumer society due to rising incomes and increasing exposure to Western and international markets. Demand for ‘Candy Crush’ branded products is present in Asia, hence management is confident that future growth can be achieved with additional working capital.
However, IPO investors need to be aware that the listing is speculative in nature as Sugar Dragon has a limited operating history, which makes it difficult to assess past performance The Company is expected to remain reliant on external capital to fund its daily operations as the business is not profitable yet. As the King.com partnership is the only source of revenue, the company is highly dependent on its license agreement with needs to be renewed by the end of 2017 and there is no guarantee that this will arise.
As Sugar Dragon is trying to raise just over $3million with less than 30million shares on issue after the prospectus, the 5.7million post-raising valuation appears undemanding and does not incorporate future growth of the business. Sales growth is expected to be the primary catalyst for investors, which may be achieved through organic growth or additional wholesale contracts. However, as it is uncertain how long the “Candy Crush” hype could last, management should aim to diversify its products and introduce additional revenue streams in order to become a sustainable business.
Details of the IPO
Company: Sugar Dragon Limited
ASX Code: SDC
Shares on Offer: 16 million
Listing Price: $0.20
Market Capitalisation: $5.7million
Listing Date: March 21st
This article appeared first on The Australian.