Source | Deep Blue Finance

Written by | Wu Ruixin

Today, all social media platforms are flooded with images of a monkey.

'Black Myth: Wukong' has become a hit, and this fact is undeniable. As the first 3A game masterpiece made in China, 'Black Myth: Wukong' has been eagerly anticipated by netizens for a long time.

According to public information, since pre-orders began on June 8th, 'Black Myth: Wukong' has sold 1.2 million copies in nearly a month, generating sales of nearly 400 million RMB. On August 20th, at 10 AM, 'Black Myth: Wukong' was officially launched, immediately topping the Weibo trending list, with related hashtags like "Facing Destiny" and "Tencent Offered Money to Black Myth" also trending.

By noon on August 20th, the number of concurrent players on Steam for 'Black Myth: Wukong' had exceeded 1.4 million, making it the fourth most popular game on Steam in terms of concurrent players. If you add platforms like PS5, Steam, and WeGame, the number could be even higher.

Keep in mind, this is still Tuesday morning. If we consider evenings after work and weekends, the number of concurrent players may increase even further.

The popularity of 'Black Myth: Wukong' has directly fueled related A-share stocks, most notably those of its shareholders - Tencent, Hero Entertainment, and Huayi Brothers, which has indirectly benefited from this hot topic through Hero Entertainment.

In particular, Huayi Brothers has emerged as the leading concept stock for 'Black Myth: Wukong.' On August 20th, Huayi Brothers' share price soared by 10% at the opening bell and even reached the daily limit in the afternoon. In the previous four trading days, Huayi Brothers had already risen for three days thanks to 'Black Myth.' By the close on August 20th, Huayi Brothers' share price had increased by over 70%, from 1.72 RMB at the close on August 13th to 2.94 RMB.

1

Did Hero Entertainment 'jump ship' before the finish line? Sold 19% stake early

Speaking of which, Huayi Brothers' windfall can be considered a stroke of luck. In reality, Huayi Brothers' business has nothing to do with 'Black Myth.'

The reason Huayi Brothers' share price surged thanks to 'Black Myth' is primarily due to its investment in Hero Entertainment.

According to Tianyancha, the producer of 'Black Myth' - Game Science, whose full name is Shenzhen Youke Interactive Technology Co., Ltd. - has only received two rounds of funding since its inception: one from early investor Hero Entertainment and the other from Tencent, the company's former parent.

According to Tianyancha's business information, Hero Entertainment holds a 19% stake in Game Science through its subsidiary Tianjin Hero Financial Holding Technology Co., Ltd., while Tencent holds a 5% stake through Guangxi Tencent Venture Capital Co., Ltd.

Currently, Huayi Brothers holds a total of 74,183,641 unrestricted shares in Hero Game Technology Co., Ltd., accounting for approximately 5.17% of the total share capital.

In terms of investment relationships, Hero Entertainment and Game Science have a close tie. According to Tianyancha, Game Science received angel and A-round funding from Hero Entertainment on May 12th, 2017, though the valuation and funding amounts were not disclosed. However, according to business information, Tianjin Hero Financial Holding Technology Co., Ltd. has a subscribed capital contribution of 125,000 RMB.

With a 19% stake, Hero Entertainment is undoubtedly Game Science's largest external shareholder. However, this status may be questionable.

According to Hero Entertainment's 2022 annual report, the company had already sold its entire 19% stake in Game Science for 480 million RMB. However, the transaction was not settled in a lump sum; in 2022, Hero Entertainment only received the first installment of 280 million RMB. According to the announcement, the remaining 200 million RMB will be paid at a time mutually agreed upon in writing (not earlier than April 1st, 2025), subject to contingencies.

Furthermore, in Hero Entertainment's 2023 financial report, Game Science disappeared from the "long-term equity investments" section.

On the surface, it appears that Hero Entertainment has "jumped ship" before the official launch of 'Black Myth.' As such, the current success of 'Black Myth' may have little to do with them.

However, this is not entirely true.

Despite the announcement of the sale of its entire stake in Game Science, Hero Entertainment and Game Science remain closely connected.

For example, a related-party transaction announcement issued on February 1st, 2024, stated that Hero Entertainment expects to pay 20 million RMB to Shenzhen Youke Interactive for game distribution and anticipates earning 200 million RMB in game revenue.

However, it remains questionable whether Hero Entertainment still holds a stake in Game Science.

2

Tencent may be the invisible big winner

While Hero Entertainment jumped ship early and sold its stake, Tencent quietly emerged as the big winner.

In H1 2023, Tencent's Linzhi Tencent Technology Co., Ltd. acquired a 19% stake in Hero Entertainment, indirectly holding a 3.61% stake in Game Science.

On March 12th, 2024, Linzhi Tencent Technology also obtained the pledge right to 20% of Hero Entertainment's shares. This pledge came from Hero Game's controlling shareholder, Tianjin Dino Investment Management Co., Ltd., which holds approximately 30% of the shares. In other words, Linzhi Tencent gained equivalent rights to a 3.8% stake in Game Science.

Adding the previous 5% stake directly held by Guangxi Tencent Venture Capital Co., Ltd., Tencent now directly holds an 8.61% stake in Game Science and enjoys equivalent rights to an additional 3.8% stake through the pledged 20% stake in Hero Entertainment.

However, all of this is contingent on Hero Entertainment still holding a stake in Game Science.

Currently, the business information for Shenzhen Youke Interactive Technology Co., Ltd. is still from 2019. Some netizens speculate that Tencent may be the buyer of Hero Entertainment's stake.

This speculation is not without merit. Linzhi Tencent's two investments in Hero Entertainment both occurred after 2022. During this time, Hero Entertainment lost a total of 2.274 billion RMB in 2021 and 2022, wiping out all profits from the previous decade.

Concurrently, Hero Entertainment's operating net cash flow in 2022 was -30 million RMB, marking the first negative value in its history, while its net cash flow from investing activities worsened to -372 million RMB.

Under these circumstances, Hero Entertainment first pledged its stake in Game Science to China Merchants Bank for a loan and later sold it.

Despite this, Tencent still chose to firmly invest in Hero Entertainment, and the reasons behind this decision are undoubtedly complex.

However, these are merely speculations by netizens. The truth can only be revealed through updated business information from Game Science or further disclosures from Hero Entertainment and Tencent.