Market Overview - On November 7, the gaming sector declined by 0.97% compared to the previous trading day, with 37 Interactive Entertainment leading the drop [1] - The Shanghai Composite Index closed at 3997.56, down 0.25%, while the Shenzhen Component Index closed at 13404.06, down 0.36% [1] Individual Stock Performance - ST Huada (002602) rose by 2.01% to a closing price of 18.29, with a trading volume of 995,300 shares and a turnover of 1.8 billion yuan [1] - 37 Interactive Entertainment (002555) fell by 3.42% to a closing price of 22.00, with a trading volume of 695,700 shares and a turnover of 1.542 billion yuan [2] - Perfect World (002624) decreased by 2.85% to 16.01, with a trading volume of 425,200 shares and a turnover of 687 million yuan [2] Capital Flow Analysis - The gaming sector experienced a net outflow of 999 million yuan from main funds, while retail investors saw a net inflow of 760 million yuan [2][3] - ST Huada had a main fund net inflow of 14.7 million yuan, while 37 Interactive Entertainment saw a net outflow of 270 million yuan [3] ETF Performance - The Gaming ETF (159869) tracking the China Animation and Gaming Index fell by 1.49% over the past five days, with a net outflow of 51.09 million yuan [5] - The Food and Beverage ETF (515170) saw a slight decline of 0.17%, with a net inflow of 10.36 million yuan [5]

Investment Rating - The report maintains an "Outperform" rating for the media industry [2] Core Insights - The media sector has shown significant growth in Q3 2025, with public funds increasing their allocation to the sector, reaching a five-year high in both holding scale and allocation ratio [5][8] - The report highlights the strong performance of the gaming industry, AI applications, state-owned educational publishing companies, and leading advertising media companies as key areas of investment focus [5][8] Summary by Sections 1. Q3 Performance Overview: Record Revenue and Significant Profit Recovery - In the first three quarters of 2025, the media sector's total revenue reached CNY 416.065 billion, a year-on-year increase of 4.98%, while net profit attributable to shareholders was CNY 32.891 billion, up 40.23% [8][13] - Q3 alone saw revenue of CNY 143.178 billion, a year-on-year increase of 8.41%, and net profit of CNY 10.617 billion, up 44.74% [8][13] 2. Subsector Performance: Notable Industry Divergence, Strong Growth in Gaming - The gaming sector demonstrated high market vitality, with revenue of CNY 74.788 billion in the first three quarters, a 25.92% increase year-on-year, and net profit of CNY 13.475 billion, up 82.32% [30][32] - The film sector's revenue increased by 10.52% year-on-year to CNY 26.265 billion, while net profit surged by 482.33% to CNY 1.826 billion [50] - The publishing sector faced a revenue decline of 7.10% to CNY 97.600 billion, but net profit increased by 15.43% to CNY 11.421 billion, largely due to tax policy impacts [80][86] 3. Fund Holding Changes: Significant Increase in Sector Allocation, Favoring Gaming Companies - Public funds' total market value of heavy holdings in the media sector reached CNY 59.394 billion in Q3 2025, a 63.43% increase from Q2 2025 [5][95] - The gaming sector received the most attention, with heavy holdings amounting to CNY 43.546 billion, representing 73.32% of the total media sector holdings [5][95] 4. Investment Recommendations - The report suggests focusing on sectors with high industry vitality, such as gaming and AI applications, as well as state-owned educational publishing companies with defensive value characteristics [5][8]

Core Viewpoint - The stock of Sanqi Interactive Entertainment has experienced fluctuations, with a recent decline of 2.02%, while the company has shown significant growth in stock price year-to-date, increasing by 52.40% [1] Financial Performance - For the period from January to September 2025, Sanqi Interactive Entertainment reported a revenue of 12.461 billion yuan, a year-on-year decrease of 6.59%, while the net profit attributable to shareholders was 2.345 billion yuan, reflecting a year-on-year increase of 23.57% [2] - The company has distributed a total of 11.5 billion yuan in dividends since its A-share listing, with 6.388 billion yuan distributed over the past three years [3] Stock Market Activity - As of November 7, the stock price was 22.32 yuan per share, with a market capitalization of 49.377 billion yuan. The trading volume was 320 million yuan, with a turnover rate of 0.89% [1] - The company has seen a net outflow of 25.4831 million yuan in principal funds, with significant buying and selling activity from large orders [1] Shareholder Information - As of September 30, 2025, the number of shareholders increased to 159,300, with an average of 10,034 shares per shareholder, a decrease of 5.54% from the previous period [2] - The largest circulating shareholder is Hong Kong Central Clearing Limited, holding 128 million shares, a decrease of 4.3869 million shares from the previous period [3]

Core Insights - The feedback from over 4,000 Gen Z users across Europe, the Middle East, and North America highlights the strong potential of Chinese gaming as a cultural export and recognizes the efforts of the company in global markets [2] - The company has been a pioneer in overseas market exploration since 2012, operating in over 200 countries and regions, and has released nearly 250 games across various genres [2] - The company's overseas revenue has seen exponential growth, increasing from 356 million yuan in 2015 to 5.722 billion yuan in 2024, representing a nearly 15-fold increase and accounting for 33% of total revenue [2] - In the first half of this year, the company's overseas revenue reached 2.724 billion yuan [2] Product Performance - The game "Puzzles & Survival" has achieved significant global success with cumulative revenue exceeding 10 billion yuan, while "Puzzles & Chaos" has surpassed 15 million global players and ranked among the top 20 strategy games in over 80 regions [2] - The culturally themed game "Call Me Big Shopkeeper" has broken barriers for traditional Chinese games in the Western market, becoming a benchmark for cultural export [2] Global Strategy - The company's global strategy focuses on "integrated research and operations, IP ecosystem, and technology empowerment," breaking down barriers between development and publishing to incorporate localization from the project's inception [3] - A refined operational system has been established to address cultural differences in various markets, allowing for tailored customization of game elements [3] - The company employs a dual-track approach to IP development, creating original IPs while adapting popular domestic IPs for global audiences, thereby facilitating cultural exchange [3] Technological Empowerment - The company has developed over 40 AI capabilities and more than 400 intelligent agents across its business chain, with AI-generated video content accounting for over 70% of advertising efforts [4] - AI translation supports 18 languages with a 95% accuracy rate, covering 85% of overseas games, enabling rapid response to Gen Z user demands [4] - The company aims to deepen its "premium, diversified, and global" strategy by leveraging AI and big data to enhance its research and operations system while promoting traditional Chinese culture through gaming [4]

Industry Overview - The gaming industry continues to show a growth trend, with significant performance from leading companies. In Q3 2025, industry revenue reached 30.362 billion yuan, representing a year-on-year increase of 28.6% and a quarter-on-quarter increase of 9.48%. The industry's profit also saw a substantial year-on-year growth of 112%, reaching 5.777 billion yuan, with a profit margin of 19% [1][2]. Key Companies Performance - Leading companies such as ST Huatuo, Sanqi Interactive, Giant Network, Kaiying Network, and G-bits reported quarterly net profits exceeding 500 million yuan, all demonstrating growth rates above 35% [1][2]. - Kaiying Network achieved a net profit of 630 million yuan in Q3 2025, marking a record high for a single quarter and a year-on-year increase of 34.5%. The company's gross profit margin improved to 84.2%, indicating a higher proportion of high-margin business [3]. - Giant Network reported a revenue of 2.15 billion yuan in Q3 2025, a 101.5% increase from Q2 2025, driven by the performance of its key product "Supernatural Action Group" [3]. - G-bits recorded a net profit of 569 million yuan in a single quarter, a remarkable year-on-year increase of 307.7%. The game "Staff Sword Legend" generated a total revenue of 1.166 billion yuan in the first three quarters of 2025 [4]. - ST Huatuo's successful overseas product "Whiteout Survival" has shown stable performance in both domestic and international markets, while its new product "Kingshot" has validated the feasibility of the "casual + SLG" model [4]. Market Dynamics - The issuance of game licenses has stabilized, with a record number of domestic licenses issued in 2025, totaling 1,354, surpassing the entire year of 2024 [2]. - The actual sales revenue of the Chinese gaming market from January to September 2025 increased by 7.11% year-on-year, with a continuous quarter-on-quarter growth, driven by excellent product performance [2].

Investment Rating - The report indicates a positive investment outlook for the gaming sector, highlighting its strong performance compared to other sub-industries within the media sector [3][4]. Core Insights - The A-share media sector reported an 8.2% year-on-year revenue growth and a 59.8% increase in net profit attributable to shareholders in Q3 2025, with significant differentiation among sub-industries [3][4]. - The gaming industry showed remarkable growth, with a 28.6% year-on-year revenue increase, marking six consecutive quarters of accelerating revenue growth and achieving a profit margin of 19.0%, the highest quarterly level since 2022 [3][4]. - The external environment for gaming continues to improve, with an increase in the average monthly number of domestic game approvals and relaxed third-party payment policies from platforms like Google and Apple, which are expected to enhance channel cost efficiency [3][6][10]. - The advertising sector, particularly focusing on Focus Media, has seen substantial growth in internet advertising spending, leading to improved profit margins and a return to historical highs in gross margins [3][4]. - The publishing sector has shown mixed results, with some state-owned publishing groups experiencing significant profit growth while others face challenges due to changes in educational material subscription methods [3][4]. Summary by Sections Gaming Sector - The gaming sector's revenue in Q3 2025 grew by 28.6% year-on-year, with a profit margin of 19.0%, the best performance since 2022 [3][4]. - Domestic PC game sales increased by 20% year-on-year, driven by titles like "Dream" and "Delta" [11]. - Key companies to watch include ST Huatuo, Giant Network, and Jiubite, which have shown significant growth [3][4][19]. Advertising Sector - Focus Media has optimized its cost structure, leading to a gross margin that has reached historical highs [3][4]. - Future observations will focus on the elasticity of internet advertising spending and the impact of new partnerships and acquisitions [3][4]. Publishing Sector - The performance of state-owned publishing groups varies, with some recovering from previous declines while others continue to face challenges [3][4]. - The overall trend indicates a need for adaptation to changing market conditions and consumer demands [3][4]. Long Video Sector - Mango TV is at a critical juncture, with expectations for operational improvements as policy support strengthens [3][4]. - The focus will be on innovative IP operations and product cycles in the coming years [3][4].

Core Viewpoint - Sanqi Interactive Entertainment (002555) has received a notice of administrative penalty for multiple violations related to false disclosures in shareholder equity and undisclosed related party transactions in annual reports from 2014 to 2021 [1] Summary by Relevant Sections Violations Identified - The company reported false information regarding shareholder equity in annual reports from 2014 to 2020 [1] - The 2018 annual report failed to disclose the acquisition of Jiangsu Aurora's equity as a related party transaction, representing a significant omission [1] - The indirect acquisition of Guangzhou Sanqi's equity in 2020 was also classified as a related party transaction, with false information in the temporary announcement on December 7, 2020, and significant omissions in the 2020 annual report [1] - Annual reports from 2018 to 2021 did not disclose related party transactions with Hainan Liyuan and other companies, indicating major omissions [1] Investor Compensation Opportunities - Investors may have the opportunity to claim compensation due to the company's false disclosures [1] - According to lawyer Xu Jin, investors can file civil compensation lawsuits in competent courts for losses caused by the company's false statements, with potential claims covering investment loss differences, stamp duty, and commission losses [1] Conditions for Claims - Preliminary conditions for claims include purchasing shares between March 31, 2015, and June 28, 2023, and selling or holding them at a loss after June 28, 2023 [1] - Investors are advised to prepare necessary documentation, including a copy of their ID, confirmation of securities account opening, and transaction records stamped by the brokerage [1]

Domestic Industry Updates - Multiple gaming companies in China reported significant year-on-year growth in Q3 performance, with Giant Network's CEO Zhang Dong resigning and board member Liu Wei taking over [2][9] - The game "Escape from Duckkov" sold over 2 million copies, boosting Bilibili's stock price [2] - 37 Interactive Entertainment was fined over 30 million yuan for false records and disclosure violations [2][10] Century Huatong Financial Results - Century Huatong reported Q3 revenue of 10.016 billion yuan, a year-on-year increase of 60.19%, and a net profit of 1.701 billion yuan, up 163.78% [3] 37 Interactive Entertainment Financial Results - 37 Interactive Entertainment's Q3 revenue was 3.975 billion yuan, a year-on-year decrease of 3.23%, while net profit increased by 49.24% to 944 million yuan [4] Youzu Interactive Financial Results - Youzu Interactive reported Q3 revenue of 331 million yuan, a year-on-year increase of 11.99%, with net profit soaring by 4466.74% to 26.2 million yuan [5] Perfect World Financial Results - Perfect World achieved Q3 revenue of 1.726 billion yuan, a year-on-year increase of 31.45%, and net profit of 162 million yuan, up 176.59% [6] Giant Network Financial Results - Giant Network's Q3 revenue reached 1.706 billion yuan, a year-on-year increase of 115.63%, with net profit of 640 million yuan, up 81.19% [7] G-bits Financial Results - G-bits reported Q3 revenue of 1.968 billion yuan, a year-on-year increase of 129.19%, and net profit of 569 million yuan, up 307.7% [8] Google Play Payment Policy Change - Google announced it will no longer require developers to use Google Play Billing in the U.S., allowing third-party payment options [11] Nintendo Patent Dispute - Nintendo's patent application related to "Beast of Palu" faced scrutiny from Japan's Patent Office, raising concerns about its validity [12] Amazon Game Development Update - Amazon announced layoffs affecting 14,000 employees, potentially halting the development of the "Lord of the Rings" MMO [13] Esports Update - LCK team T1 defeated AL and TES, advancing to the S15 finals against KT [14]

Industry Updates - Multiple gaming companies in China reported significant year-on-year growth in Q3 earnings, with Century Huatong achieving a record revenue of 10.016 billion yuan, up 60.19% [3] - 37 Interactive Entertainment reported a Q3 net profit of 944 million yuan, a 49.24% increase year-on-year, despite a 3.23% decline in revenue [4] - Youzu Interactive's Q3 net profit surged by 4466.74% to 26.2 million yuan, with revenue growing by 11.99% [5] - Perfect World reported a Q3 net profit of 162 million yuan, up 176.59%, with revenue increasing by 31.45% [6] - Giant Network's Q3 revenue reached 1.706 billion yuan, a 115.63% increase, with net profit growing by 81.19% [7] - G-bits reported a Q3 net profit of 569 million yuan, a 307.7% increase, with revenue up 129.19% [8] Corporate Changes - Giant Network's CEO Zhang Dong resigned for personal reasons, with board member Liu Wei taking over [9] - The company emphasized that the resignation would not impact normal operations, and internal management structures remain intact [9] Regulatory and Legal Issues - 37 Interactive Entertainment and related parties were fined over 30 million yuan for false records and disclosure violations [10] - Google Play announced it would allow third-party payment options following a court ruling [11] - Nintendo faced challenges regarding a patent application related to "Beast of Palu," raising concerns about its validity [12] - Amazon's development of the "Lord of the Rings" MMO may be halted due to significant layoffs in its gaming division [13] Esports Highlights - T1 esports team advanced to the S15 finals after defeating AL and TES [2][14]

Core Viewpoint - The company 37 Interactive Entertainment is facing a penalty of 32.55 million yuan due to violations of information disclosure over a period of seven years, with its current chairman, Li Weiwei, personally fined 14 million yuan [1][2]. Group 1: Violations and Penalties - The violations stem from four main issues: false records of shareholder holdings in annual reports from 2014 to 2020; failure to disclose the acquisition of Jiangsu Aurora's equity as a related party transaction in the 2018 annual report; false records and significant omissions in the disclosure of the indirect acquisition of Guangzhou 37's equity in 2020; and failure to disclose related party transactions with Hainan Liyuan and others in annual reports from 2018 to 2021 [1]. - The China Securities Regulatory Commission (CSRC) has proposed to order the company to rectify the issues and issue warnings to the responsible parties, including a total fine of 32.55 million yuan for the company and six related individuals, including the chairman [2]. Group 2: Individual Penalties - Li Weiwei, the current chairman, is facing a total fine of 14 million yuan, which includes 5 million yuan for being a directly responsible supervisor and 9 million yuan as the actual controller of the company [2].