CAEI Buys a Major Stake in ConnGame - Analyst Blog

China Architectural Engineering Inc. (CAEI) announced the completion of its acquisition of a 60% stake in Shanghai ConnGame Network Ltd. ,aka ConnGame, an MMORPG (Massively Multiplayer Online Role Playing Game) developer and operator, equal to 25 million shares of China Architectural’s common stock.

China Architectural had announced in the fourth quarter of fiscal 2009, that it has signed a letter of intent to acquire ConnGame. In the first quarter of fiscal 2010, shareholders of China Architectural approved the acquisition.

Founded and managed by China’s online game industry’s seasoned experts, ConnGame develops and operates MMORPGs in China. Leveraging its innovative game engines, scalable development platforms and accomplished production teams, ConnGame focuses on self-developed MMORPG game titles.

China Architectural and ConnGame have different lines of businesses. China Architectural, by virtue of this acquisition, will not only capitalize on its core architectural engineering and design market but also gain access to China’s thriving online game market.

China Architectural expects to leverage ConnGame's robust design engines and virtual applications to broaden its service capabilities and scope of architectural collaborations. The acquisition will thus help to expand China Architectural’s core capabilities as well as
transform it into an architectural design consultant and service provider.

China Architectural has been reporting losses so far in fiscal 2010 due to sluggish projects wins along with higher raw material and labor and administrative costs. The company’s decision to abstain from international projects and instead focus on the domestic market has aggravated the decline.

However, on a promising note, the company signed new contracts worth $21.5 million and expects to recognize these revenues in the second half of fiscal 2010. Further, China Architectural has targeted China's high-end landmark projects that involve more design and consulting services. To date, such contracts include the Shenzhen Airport, Hangzhou Railway Station and Joy Coast at Overseas Chinese Town worth $3 million. These projects together with the ConnGame acquisition are expected to benefit the company. However, we maintain our Neutral rating on China Architectural until it returns to profitability.

Zhuhai, China-based China Architectural Engineering Inc. specializes in high-end curtain wall systems (including glass, stone and metal curtain walls), roofing systems, steel construction systems, eco-energy saving building conservation systems and related products, for public works and commercial real estate projects.