Core Insights - The domestic gaming industry in China has shown a strong recovery in the first half of the year, with actual sales revenue reaching 168 billion yuan, a year-on-year increase of 14.08% [1] - The number of gaming users has also reached a historical high of 679 million, growing by 0.72% year-on-year [1] - The issuance of gaming licenses remains high, with 766 domestic online games approved in the first half of the year, a 21.97% increase compared to the same period in 2024 [2] Industry Performance - The gaming market is entering a phase of stock competition, with a significant disparity between companies holding popular products and those facing revenue pressures [2] - Among A-share and Hong Kong-listed gaming companies, 10 reported declines in both revenue and profit, while several others faced revenue declines or "increased revenue without increased profit" [2] Company Performance - Century Huatong leads the A-share gaming companies with a revenue of 17.2 billion yuan, up 85.5%, and a net profit of 2.656 billion yuan, up 129.33% [7] - Tencent and NetEase continue to dominate the market, with Tencent's domestic gaming revenue at 83.3 billion yuan and NetEase's at 51.6 billion yuan in the first half of the year [5] - 37 Interactive Entertainment reported a revenue decline of 8.08% to 8.486 billion yuan, but its net profit increased by 10.72% to 1.4 billion yuan [9][10] - Perfect World achieved a revenue of 3.691 billion yuan, a 33.74% increase, and turned a profit with a net profit of 503 million yuan [15][17] - Kunlun Wanwei's revenue reached 3.733 billion yuan, a 49.23% increase, but it reported a net loss of 856 million yuan [14] - G-bits reported a revenue of 2.518 billion yuan, up 28.49%, and a net profit of 645 million yuan, up 24.5% [18] Market Trends - The gaming industry is shifting towards high-quality game development and international expansion, moving away from imitation and low-quality products [4] - Companies are focusing on cost reduction and efficiency improvements to enhance profitability amid rising sales costs and market competition [18]

Industry Overview - The domestic gaming industry in China showed a strong recovery in the first half of the year, with actual sales revenue reaching 168 billion yuan, a year-on-year increase of 14.08%, marking a new high [1] - The number of gaming users reached nearly 679 million, a year-on-year growth of 0.72%, also a historical peak [1] - The issuance of gaming licenses remained high, with 766 domestic online games receiving licenses in the first half of the year, a 21.97% increase compared to the same period in 2024 [2] Market Competition - The gaming market has entered a phase of stock competition, with a growing disparity between companies holding popular products and those facing revenue pressures [2] - Among A-share and Hong Kong-listed gaming companies, 10 reported declines in both revenue and profit, while several others faced year-on-year revenue declines or "increased revenue without increased profit" [2] Company Performance - Century Huatong led the A-share gaming companies with a revenue of 17.2 billion yuan, up 85.5% year-on-year, and a net profit of 2.656 billion yuan, up 129.33% [7] - Tencent and NetEase continued to dominate the gaming market, with Tencent's domestic gaming revenue reaching 83.3 billion yuan and NetEase's gaming revenue at 51.6 billion yuan in the first half of the year [6] - 37 Interactive Entertainment reported a revenue of 8.486 billion yuan, down 8.08% year-on-year, but its net profit increased by 10.72% to 1.4 billion yuan [11] - Perfect World achieved a revenue of 3.691 billion yuan, up 33.74%, and turned a profit with a net profit of 503 million yuan [17] Cost Management and Strategy - Companies are focusing on cost management and efficiency improvements to counteract rising sales costs and the peak of user acquisition benefits [3][17] - Perfect World and G-bits have implemented strategies to reduce costs significantly, with G-bits' sales expenses halving, contributing to their profitability [17][18] - The gaming industry is shifting towards high-quality game development and international expansion, moving away from the previous reliance on imitation and low-quality games [4] Challenges and Future Outlook - Companies face challenges in product lifecycle management, with several major titles reaching maturity and new releases not yet stabilizing [13][15] - The need for continuous innovation and the development of new hit games is critical for maintaining market position and profitability [15][18]

Market Overview - On September 5, the gaming sector rose by 3.31%, led by Giant Network, while the Shanghai Composite Index closed at 3812.51, up 1.24% [1] - The Shenzhen Component Index closed at 12590.56, increasing by 3.89% [1] Individual Stock Performance - Giant Network (002558) closed at 38.39, with a gain of 9.25% and a trading volume of 530,800 shares [1] - Yaoji Technology (002605) closed at 29.18, up 6.07%, with a trading volume of 332,900 shares [1] - Star Shine Entertainment (300043) closed at 5.30, increasing by 5.58%, with a trading volume of 1,025,900 shares [1] - Perfect World (002624) closed at 15.85, up 5.46%, with a trading volume of 707,400 shares [1] - ST Huaton (002602) closed at 16.54, gaining 5.02%, with a trading volume of 1,673,600 shares [1] - Other notable performers include Baotong Technology (300031) and Kaiying Network (002517), both showing gains of 4.11% [1] Capital Flow Analysis - The gaming sector saw a net inflow of 246 million yuan from institutional investors, while retail investors experienced a net outflow of 200 million yuan [2] - Major stocks like Three Seven Interactive (002555) had a net inflow of 2.35 billion yuan from institutional investors, despite a net outflow from retail investors [3] - Yaoji Technology (002605) also saw significant institutional inflow of 152 million yuan, with retail outflows of 78 million yuan [3] ETF Performance - The Gaming ETF (product code: 159869) tracking the China Animation and Gaming Index saw a slight decline of 0.88% over the past five days, with a net inflow of 445,000 yuan [5] - The Food and Beverage ETF (product code: 515170) had a minor increase of 0.33%, with a net outflow of 2.34 million yuan [5]

Core Insights - The A-share gaming companies have reported their performance for the first half of the year, with 11 out of 26 companies achieving growth in both revenue and profit [1] - Century Huatong and Sanqi Interactive lead the market in revenue, with Century Huatong achieving 17.2 billion yuan and Sanqi Interactive 8.486 billion yuan [1][2] - AI technology has become a significant focus for A-share gaming companies, with Century Huatong and Sanqi Interactive investing heavily in AI applications across game development and operations [1][11][12] Revenue and Profit Performance - Century Huatong reported a revenue of 17.2 billion yuan, a year-on-year increase of 85.5%, and a net profit of 2.656 billion yuan, up 129.33% [1] - Sanqi Interactive achieved a revenue of 8.486 billion yuan, with a net profit of 1.4 billion yuan, reflecting a growth of 10.72% [2] - Perfect World turned around its performance with a revenue of 3.691 billion yuan, a 33.74% increase, and a net profit of 503 million yuan, marking a significant recovery [3] Key Products and Strategies - Century Huatong's success is attributed to its global strategy and hit products like "Whiteout Survival" and "Kingshot," which ranked first and second in the revenue chart [5] - Sanqi Interactive has diversified its product offerings, focusing on MMORPG, SLG, card games, and simulation games, achieving a peak monthly revenue of approximately 2.2 billion yuan [7] - Perfect World benefited from the performance of its self-developed MMORPG "Zhu Xian World," which contributed to its turnaround [3][10] AI Integration in Gaming - Century Huatong has integrated AI across its operations, enhancing efficiency in game development and operations, with AI tools improving production efficiency by 60% to 80% [11] - Sanqi Interactive has developed an industry-specific AI model "Xiao Qi," which supports various business functions, achieving over 80% AI-generated 2D art assets [12] - Giant Network has incorporated AI into its core gaming business, achieving significant user growth and engagement with its game "Supernatural Action Group" [4][8][13]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 27.50 CNY [5][3]. Core Views - The company is expected to optimize its self-developed project diversification in 2026, leading to an increase in the proportion of self-developed games and an improvement in gross margin. The forecasted net profit for the company from 2025 to 2027 is 2.763 billion, 3.226 billion, and 3.656 billion CNY respectively, with adjustments made based on game launch progress and marketing data [3][9]. Financial Performance Summary - The company's revenue for H1 2025 was 8.49 billion CNY, a year-on-year decrease of 8%, primarily due to the decline of older games like "Seeking the Great Thousand." The gross margin for H1 2025 was 76.7%, down 2.9 percentage points, mainly due to an increase in the proportion of agency games. The net profit attributable to the parent company was 1.4 billion CNY, an increase of 11% year-on-year, mainly due to reduced sales expenses [9]. - Domestic revenue for H1 2025 was 5.76 billion CNY, a year-on-year decrease of 9%, while overseas revenue was 2.72 billion CNY, a year-on-year decrease of 6%. The company has several global products awaiting launch, with a diverse portfolio across various genres [9]. - The company has significantly integrated AI technology into its operations, with over 80% of 2D art assets and over 30% of 3D assets generated using AI. AI has also been involved in generating over 70% of game advertising materials and has achieved a 95% accuracy rate in localizing translations for 85% of its overseas games [9]. Financial Forecasts - The projected revenue for the company from 2023 to 2027 is as follows: 16.547 billion, 17.441 billion, 17.087 billion, 18.097 billion, and 18.646 billion CNY, with corresponding growth rates of 0.9%, 5.4%, -2.0%, 5.9%, and 3.0% [4][11]. - The forecasted net profit for the same period is expected to grow from 2.659 billion CNY in 2023 to 3.656 billion CNY in 2027, with growth rates of -10.0%, 0.5%, 3.4%, 16.8%, and 13.3% respectively [4][11].

Core Viewpoint - The "2025-2026 Action Plan for Stable Growth in the Electronic Information Manufacturing Industry" emphasizes the promotion of artificial intelligence (AI) terminals towards higher levels of intelligent innovation and encourages local innovation applications in AI terminals [1] Group 1: Market Performance - As of September 5, 2025, the CSI Artificial Intelligence Industry Index (931071) rose by 3.70%, with constituent stocks such as Jingsheng Electronics (600699) increasing by 7.73% and Xinyi Sheng (300502) by 7.07% [1] - The AI ETF (515980) also saw an increase of 3.36%, with a cumulative rise of 9.76% over the past two weeks as of September 4, 2025 [1] - The AI ETF had a turnover rate of 11.52% and a half-day trading volume of 749 million yuan, indicating active market trading [1] Group 2: Future Outlook - The fund manager of Huafu AI ETF (515980) stated that new productivity and technological innovation will be the core market themes for a considerable time, supported by national policies and an upward industry cycle [2] - Despite some segments experiencing significant gains this year, there may be short-term technical corrections and profit-taking pressures due to crowded trading sentiment [2] - The high prosperity of the industry provides opportunities for investors to accumulate shares at lower valuations, especially in the context of a favorable cycle for industry performance [2] Group 3: Index and Stock Selection - The CSI Artificial Intelligence Industry Index has optimized stock selection and weighting based on AI business purity and growth indicators, favoring sectors like optical modules and ASIC chips [5] - The index achieved a return of 56.55% since the beginning of 2025, outperforming other AI indices such as the Sci-Tech Innovation AI (43.95%) and CS AI (44.47%) indices [5] - Investors can also consider the Huafu AI ETF linked funds (Class A 008020, Class C 008021) to capture investment opportunities driven by AI technology [5]

Group 1 - The gaming sector experienced a short-term surge, with Giant Network rising over 7% [1] - Yaoji Technology saw an increase of more than 5% [1] - Other companies such as 37 Interactive Entertainment, Kaixin Network, and G-bits also experienced significant gains [1]

Core Insights - The domestic gaming industry in China is showing strong recovery, with 11 out of 26 listed companies reporting both revenue and profit growth in the first half of 2025, while 7 companies experienced declines [1] - The actual sales revenue of the domestic gaming market reached 168 billion yuan, a year-on-year increase of 14.08%, with the user base growing to nearly 679 million, marking historical highs [1] - Policy support has played a significant role in this recovery, with 766 domestic online games receiving approval in the first half of 2025, a 21.97% increase compared to the same period in 2024 [1] Group 1: Company Performance - Perfect World achieved a net profit of 503 million yuan in the first half of 2025, turning losses into profits, driven by game revenue contributions [3] - Icefire Network also turned losses into profits, with a significant reduction in sales expenses attributed to a shift in investment strategy towards refined operations [3] - G-bits reported an increase in net profit due to a major restructuring of its product lineup, focusing on core self-developed products and high-quality agency products [4] Group 2: Market Challenges - Not all companies benefited from the industry's growth; for instance, Zhangqu Technology reported a net profit of 48 million yuan, a decline of 65.58% due to the lifecycle of older products [5] - Shenzhou Taiyue's revenue fell by 12.05%, with a significant drop in game revenue attributed to the stabilization of previously high-growth titles [5] Group 3: AI Integration - Major gaming companies are increasingly integrating AI technology across the entire game development and distribution chain, enhancing production efficiency and creating competitive advantages [6][7] - 37 Interactive Entertainment reported that over 80% of its 2D art assets were generated using AI, significantly boosting production capabilities [6] - Century Huatong is focusing on computational power and has seen rapid growth in revenue and profit from its AI-related projects [7] Group 4: Future Outlook - The industry is shifting from scale expansion to deep integration of technology and content, with a focus on balancing short-term profitability and long-term technological investments [8][9] - Analysts emphasize the importance of technological upgrades, including AI applications, to enhance market competitiveness and drive sustainable value [8][9]

Summary of the Conference Call on the Gaming Sector Industry Overview - The gaming sector in A-shares has shown strong performance in August 2025, continuing a positive trend since the beginning of the month, significantly outperforming other sectors in September [2][3][5]. Key Companies and Products - **ST Huatuo**: - "Wild Survival" achieved over $200 million in global revenue in August, a 17% month-over-month increase, with overseas iOS and Google Play contributing over $150 million, up 21% [1][2]. - "King Shot" generated $77.6 million in August, a 26% increase [2]. - "Tasty Travels" maintained a steep growth trajectory, reaching nearly $10 million in August, with a 24% month-over-month increase [2]. - **Giant Network**: - "Supernatural" has shown outstanding performance since the first half of 2025, with domestic iOS revenue in August increasing by 73% [4]. - **G-bits**: - "Sword of the Hero" performed well in overseas markets, with a 62% month-over-month increase in Hong Kong, Macau, and Taiwan, and a 116% year-over-year increase in Japan [4]. - **Xindong Company**: - The performance was driven by older games, with "Xindong Town" reaching a new high in July due to anniversary celebrations and IP collaborations [1][4]. - **Perfect World**: - "P5X Persona" exceeded expectations in Japan, contributing significantly to revenue growth, with overseas revenue in July between 140 million to 150 million RMB, and around 80 million RMB in August [1][8]. Financial Performance - In Q2 2025, 25 major A-share gaming companies reported total revenue of 27.9 billion RMB, a 23% year-over-year increase and a 4% quarter-over-quarter increase, significantly outperforming the overall domestic gaming industry growth of 10% year-over-year and -4% quarter-over-quarter [11]. - Net profit attributable to shareholders totaled 4.6 billion RMB, a 100% year-over-year increase and a 25% quarter-over-quarter increase [11]. Profitability Metrics - The gaming sector's gross margin was 68% in Q2 2025, up 3 percentage points year-over-year and 2 percentage points quarter-over-quarter, attributed to high-quality products reducing reliance on traditional channels [3][12]. - Sales expense ratio remained stable at 33%, indicating that revenue growth was not solely dependent on user acquisition spending [3][13]. Future Outlook - The gaming sector is expected to continue its growth trajectory in the second half of 2025 and into 2026, driven by several factors: - Continued strong performance of existing popular games and new product launches [5][6]. - Expansion into international markets and new game releases, such as ST Huatuo's upcoming titles [5][6]. - Increasing demand for digital entertainment and technological advancements enhancing user experience [6]. - The valuation of the sector remains reasonable, with a central estimate below 20 times earnings, suggesting potential for continued outperformance [15]. Noteworthy Trends - The application of AI in game development and marketing is expected to enhance efficiency and quality, with significant portions of advertising content being produced by AI [15]. - Companies with strong product lines and forward-looking AI strategies, such as ST Huatuo, Giant Network, G-bits, and Perfect World, are recommended for attention [17]. Additional Insights - Older games have shown resilience, with several maintaining stable revenue streams, indicating a potential for sustained performance [7][10]. - The competitive landscape has improved, with companies leveraging community marketing and content-driven strategies to reduce traditional user acquisition costs [14]. This summary encapsulates the key points from the conference call regarding the gaming sector, highlighting the performance of specific companies, financial metrics, and future outlooks.

Group 1: Overview of China's Gaming Industry Growth - The Chinese gaming industry is experiencing a new wave of growth in overseas markets, with actual sales revenue from self-developed games reaching $9.501 billion in the first half of 2025, a year-on-year increase of over 11% [1] - Traditional markets such as North America, Japan, South Korea, and Western Europe remain key revenue contributors, but competition is intensifying, prompting Chinese companies to explore underdeveloped emerging markets [1] - Emerging markets in the Middle East, Latin America, and Southeast Asia are rising, presenting new growth opportunities for manufacturers [1] Group 2: Vietnam's Gaming Market - Vietnam has emerged as a significant player in the global gaming scene, with mobile game downloads reaching the highest globally in 2024, surpassing China [5] - Chinese games dominate the Vietnamese market, with 81% of approved games being from China, and titles like "Sword of Legends Online" have historically held a significant market share [7] - The success of Chinese games in Vietnam is attributed to cultural proximity, effective localization strategies, and integration with local payment platforms [9] Group 3: Challenges in the Vietnamese Market - Despite the potential, challenges such as strict approval processes and market size versus commercial return discrepancies exist, requiring companies to adjust expectations [9] - The Vietnamese gaming market is projected to reach $1.5 to $2 billion by 2025, with an annual growth rate of 15% to 25% [9] Group 4: Middle East Gaming Market - The Middle East is becoming a new blue ocean for the gaming industry, driven by a large population, strong consumer spending, and government support [12] - Saudi Arabia's government has elevated the gaming industry as a national strategy, planning to invest $38 billion in gaming and esports [14] - The market is characterized by high consumer spending, with Saudi users' average revenue per user (ARPU) being twice that of the U.S. and five times that of China [14] Group 5: Russia's Gaming Market - Russia's mobile game downloads reached 1.18 billion in the first half of 2024, making it the fifth largest globally, supported by a smartphone penetration rate of 83% [17] - The local digital ecosystem has shown resilience despite international sanctions, with in-app purchase revenue expected to reach $247 million in 2024, growing 12% year-on-year [17] - The exit of Western companies has created a "window of opportunity" for Chinese developers to fill the gap in the market [20] Group 6: Latin America's Gaming Market - Latin America is a growing market with approximately 150 million gamers and a market size of around $3.8 billion, with Brazil being the largest market [21] - The effectiveness of marketing strategies has shifted towards leveraging KOLs (Key Opinion Leaders) for brand promotion, especially in gaming [23] - The market is in a recovery phase, with Chinese companies increasingly establishing local teams for customized operations [24] Group 7: Future Outlook - The Chinese gaming industry is entering a new phase focused on strategic depth and localization, moving away from a reliance on traffic and short-term gains [25] - The next decade will see competition driven by the ability to transition from "game developers" to "localization partners," enabling sustainable global development [26]