On May 29, 2017, 500 Lottery announced that it would acquire 40.65% of Lotto Interactive Entertainment (formerly known as Melco Huancai) for HK$322 million. At present, Lotto Interactive Entertainment has announced its third-quarter results. So, has this company made money for 500 lottery?
According to the financial report, as of September 30, 2017, Lotto Interactive Entertainment had revenue of HK$9.411 million and a loss of HK$1.926 million from June to September. From January to September, revenue was HK$19.5 million, a decrease of about 63% compared with HK$52.3 million in the same period last year; loss was HK$818.9, a decrease of 51% year-on-year.
Historically, Lotto Interactive Entertainment's revenue in the first three quarters of this year was the worst level in the past five years, but fortunately, the amount of losses narrowed.
revenue mainly comes from two parts.
One of them is the sale of lottery terminals and components, and this revenue is HK$18.7 million, a year-on-year decrease of about 64%. The second is to provide services and solutions to distribute lottery products. This revenue was HK$800,000, an increase of 14% year-on-year.
It can be seen that lottery terminals and components are the main sources, accounting for as high as 95.9%. However, this business revenue fell by more than half. According to the financial report, the reason is that there was no lottery terminal trading in the second quarter.
In fact, in the past two years, the suspension of Internet lottery has triggered a series of domino effects: lottery sales decreased - chaos caused lottery audits and rectifications - terminal equipment purchases decreased - industry companies' revenue decreased - in order to survive, corporate competition intensified.
As one of them, Lotto Interactive Entertainment has undoubtedly been affected. Moreover, it has few advantages in the field of terminal machines itself. Although he entered the mainland lottery industry as early as 2011, he has not made any money in recent years, and even in the best 2014, he still lost HK$66.5 million. In the end, he had no choice but to be acquired by 500 lottery. The reason we have analyzed in this article may be related to its single business and overly reliance on large customers.
Seeing this, we couldn't help but wonder, since Lotto Interactive Entertainment is not making money, why does 500 lottery still take it into its pocket? You should know that since the online lottery was suspended in 2015, 500 lottery has been underpaid, and the annual loss is tens of millions. It is unreasonable to collect another company that loses.
Whether it is reasonable or not, it is an indisputable fact that Lotto Interactive Entertainment has become a subsidiary of 500 Lottery. Is it worth spending HK$322 million to acquire Lotto Interactive Entertainment? Is this a failed investment? It is too early to draw a conclusion now, but at least judging from the performance of Lotto Interactive Entertainment three months after the acquisition of Lotto Interactive Entertainment, the answer is yes: In the third quarter, Lotto Interactive Entertainment's lottery terminals and components revenue was HK$9.2 million, a year-on-year decrease of about half, and the loss was HK$8.2 million.
In other words, if Lotto Interactive Entertainment's performance is consolidated to the third quarter financial report that 500 Lottery will be released soon, it will bring a loss of HK$8.2 million to 500 Lottery.
It is worth noting that Lotto Interactive Entertainment also revealed in its financial report that "in order to further streamline the business of the Group, the Group has entered into a termination agreement with its Chinese business partners on October 17, 2017, and accordingly, the Group has stopped operating the retail store network in China."
Lotto Interactive Entertainment has some lottery retail stores in the mainland, and this item is included in the "service to provide services to distribute lottery products." As analyzed earlier, this revenue in the third quarter was only 800,000, accounting for about 4.1% of the total revenue, which is a waste of money. It is reasonable to stop operations.
In this way, Lotto Interactive Entertainment only has the business of lottery terminals and components, and this business revenue is almost dependent on its major customer Beijing Intda System Technology Co., Ltd. - in the past few years, its revenue contribution to Lotto Interactive Entertainment accounted for more than 80%. In other words, life and death determine the fate of Lotto Interactive Entertainment. It seems that 500 Lottery has to be more troublesome to reverse the loss of Lotto Interactive Entertainment.
About Lotto Interactive Entertainment
Lotto Interactive Entertainment, original name of New Moor Huancai. Founded in November 1998, it was listed on the Hong Kong Stock Exchange in May 2002. Its main business is to sell terminals and components, and to provide lottery-related technologies and solutions.
In July 2011, it acquired 51% of the equity of Beijing Telecom Information Technology Co., Ltd. (later renamed Beijing Huancai) (in 2014 to 52.5%). The latter's main business is to distribute lottery terminals, taking this opportunity to enter the mainland lottery industry.
On May 29, 2017, 500 Lottery acquired 40.65% of its shares for HK$322 million.
In October 2017, the company name was changed from MelcoLot Limited (Xinhaohuancai Co., Ltd.) to Loto Interactive Limited (Loto Interactive Entertainment Co., Ltd.). (Lin R)
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