A Hong Kong-listed company, JIA YAO HLDGS (01626.HK), has announced a bold plan to acquire 80% of an AI-driven game developer, despite a massive gap between the target's current profits and its ambitious promises. The deal, worth up to HK$430 million, aims to diversify the acquirer's struggling business, but it hinges on a profit target that seems almost impossible to reach.

On August 12, 2026, JIA YAO HLDGS revealed it would issue new shares, priced at a 17.9% discount to the market, to pay for the stake in Hong Kong-based AI game company Nine Wanli Technology. The maximum payout would be around 20.5 million shares, representing about 3.42% of JIA YAO HLDGS' existing share capital. The deal's unique nature is stark: a traditional e-cigarette maker with a profit of just 1.83 million yuan (approximately HK$2 million) is using HK$430 million in shares to buy an AI game developer that earned only 310,000 yuan (approximately HK$340,000) in its latest fiscal year. The seller's profit guarantee for 2026 is a staggering HK$50 million.

The buyer's core business is shrinking. JIA YAO HLDGS, listed in Hong Kong since 2014, originally focused on cigarette packaging. It shifted to e-cigarette design and production in 2023-2024. Its 2025 results showed a 16.3% drop in revenue to 645 million yuan, while net profit attributable to owners plummeted by 96.38% to just 1.83 million yuan. E-cigarette sales fell by 22.4% to 534 million yuan. With its main business struggling and nearly zero profit, the company is urgently seeking a "second curve." The management stated the acquisition aligns with its strategy to diversify beyond e-cigarettes and strengthen its position in the fast-growing AI sector.

The target company's valuation is sky-high relative to its earnings. Founded in 2024, Nine Wanli Technology develops and publishes AI-driven internet games and offers enterprise AI services. Its most successful product is a casual simulation game called "Idol Empire," which uses AI-assisted 3D visuals. The company claims over 5 million downloads globally. However, its financials tell a different story. For the 2024 fiscal year (ending March 2025), revenue was just 1.97 million yuan, with a net loss of 1.22 million yuan. The 2025 fiscal year (ending March 2026) saw revenue rise to 4.71 million yuan, but net profit was only 310,000 yuan. With a total valuation of HK$540 million for the 80% stake, the company trades at a price-to-earnings (P/E) ratio of over 1,700 times its tiny profit. The only support for this valuation is an unfulfilled performance promise.

The performance target is a massive leap of faith. The seller has promised that the target group will achieve a net profit of at least HK$50 million for the year ending December 31, 2026. If the actual profit falls short, the number of shares the seller receives will be proportionally reduced. This means Nine Wanli Technology must achieve its profit target in full to get the full share payment; otherwise, it could receive nothing. The jump from 310,000 yuan to HK$50 million represents a profit increase of over 160 times in one year. In the fiercely competitive casual game market, where user acquisition costs are rising, this target is almost astronomical. If the goal is met, JIA YAO HLDGS' business composition could shift dramatically, potentially making gaming its primary revenue source.

Notably, Nine Wanli Technology's controlling shareholder, Lu Zhengchao, is closely linked to another Hong Kong-based company, Guangyu Technology, which went public in the US in January 2026. Lu previously held senior product roles at Alibaba and Tencent, working on overseas expansion for apps with millions of daily active users. He later founded the overseas game brand Smillage. However, Guangyu Technology's 2025 revenue was only 6.81 million yuan, with a net loss of 1.55 million yuan, showing a similar scale of minimal profitability. Both business lines are far from supporting the HK$50 million target.

The deal faces three major risks. First, the risk of the performance promise not being met. A 160-fold profit increase in one year is almost unheard of in the gaming industry. Even if "Idol Empire" continues to grow in Western markets, a casual simulation game would need to achieve a massive leap in user numbers, payment rates, and average revenue per user (ARPU) to go from 310,000 yuan in profit to HK$50 million in six months. The game's Google Play download count is only around 10,000, a huge discrepancy from the company's claimed 5 million downloads. Second, there is a significant challenge in business synergy. JIA YAO HLDGS makes e-cigarettes, while Nine Wanli Technology develops AI games. There is almost no industrial chain overlap. The company's stated reasons for the acquisition, such as "capturing AI market opportunities" and "enhancing AI capabilities," are vague strategic narratives rather than a concrete integration plan. Third, there is a regulatory risk of a change in the company's primary business. If the performance target is met, gaming could surpass e-cigarettes as JIA YAO HLDGS' main revenue source, potentially triggering additional reviews and shareholder approval requirements from the Hong Kong Stock Exchange.

In conclusion, JIA YAO HLDGS' acquisition of Nine Wanli Technology is a cross-sector gamble built on an aggressive performance target. The buyer's core business is shrinking and nearly profitless, desperately needing a new story. The seller, earning just 310,000 yuan, promises to make HK$50 million in a year. The gap between them cannot be bridged by concepts like "AI-driven" or "global expansion." From a structural perspective, this is a classic "share payment + performance target + AI asset deal." The real question for the market is not whether AI is being adopted, but whether the AI business can generate genuine revenue and profit. The HK$50 million profit promise will be the ultimate test of this acquisition's success. If it is met, JIA YAO HLDGS could gain a new growth engine. If not, the target mechanism will directly impact the final deal price. The answer lies not in the announcement, but in whether Nine Wanli Technology can turn "Idol Empire" from a game with 10,000 downloads into a real money-maker before the end of 2026.