Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Online Entertainment Sector - **Performance**: Online entertainment has been a significant outperformer year-to-date (YTD) within the China internet sector, driven by robust consumer spending on leisure and favorable investor positioning amid macro uncertainties [2][8] Core Insights - **Earnings Season Expectations**: A mixed Q325 earnings season is anticipated for online entertainment, with potential positive surprises from companies like Bilibili and Kuaishou. NetEase is favored for its revival in evergreen titles and upcoming launches [2][3] - **Gaming Sector Divergence**: Following a strong YTD performance in online gaming, divergence is expected as new game launches from A-share companies are priced in. Preference remains for ADR/H game companies based on new game catalysts and healthy evergreen title portfolios [3][9] - **Advertising Sector**: Slight acceleration in Q3 ad performance is noted, with uncertainty around new tax policies. Companies like Tencent, Bilibili, and Kuaishou are expected to outperform due to improvements in adtech and monetization [4][9] - **Media Sector**: Overall quiet results are expected for the online media sector, with a positive outlook on long-form video (LFV) regulation, although its impact may take time to materialize [5][20] Company-Specific Insights - **Bilibili**: - Price target raised to US$37.00 from US$30.00, reflecting a 23.3% increase. The company is expected to benefit from the successful launch of "Escape From Duckrov," which had a peak of 222k concurrent players on Steam [3][14][17] - Q325 estimates remain unchanged, but Q425 game revenue is raised by 5% due to better-than-expected contributions from new titles [13][17] - **NetEase**: - Expected solid Q325 results with game acceleration, particularly with the upcoming global launch of "Where Winds Meet" on November 15 [3][9][10] - **Kuaishou**: - Positive outlook based on fundamental outperformance and AI capabilities, with key focuses on ad revenue guidance and e-commerce outlook [9][10] - **iQiyi**: - Q325 topline expected to be flat QoQ, with ad revenue projected to decline by 3% due to macro conditions. Adjusted net profit estimates lowered by 17-25% [19][20] - **Weibo**: - Negative revisions expected due to slower consumption trends, although limited valuation downside is noted with a projected 8% dividend yield [9][10] Additional Insights - **Short Dramas Growth**: The growth momentum of short dramas is expected to continue, driven by consumer demand for fragmented video content and a flexible business model compared to LFV [8] - **Regulatory Environment**: The recent LFV regulation is seen as a major positive for iQiyi, although its benefits may take time to materialize [5][20] Financial Metrics - **Bilibili's Financials**: - Non-GAAP operating profit for Q4 expected to be Rmb862 million, with a margin of 10.4% [13][17] - Total revenues for FY2025 estimated at Rmb30.285 billion, with a YoY growth of 12.9% [17][18] - **iQiyi's Financials**: - Expected non-GAAP operating loss of Rmb25 million for Q325, with a net loss of Rmb135 million [19][20] This summary encapsulates the key points from the conference call, highlighting the performance and expectations for the online entertainment sector and specific companies within it.

Summary of Conference Call Notes Industry Overview - The report focuses on the **SMID (small-mid cap) Internet/Media sector in China** and reflects recent secular changes in the industry [2][4]. Key Companies and Ratings - **Damai**: Maintained an Overweight (OW) rating; price target raised from HK$0.58 to HK$1.20, reflecting a 107% increase [3][15]. - **37 Interactive Entertainment (37IE)**: Maintained OW rating; price target increased from RMB 23.00 to RMB 25.90, a 13% rise [4][15]. - **Maoyan**: Downgraded from OW to Equal-weight (EW); price target adjusted from HK$7.50 to HK$8.00, a 7% increase [6][15]. - **JOYY**: Maintained EW rating; price target raised from US$40.00 to US$62.00, a 55% increase [4][15]. - **IQIYI**: Maintained EW rating; price target increased from US$2.10 to US$2.30, a 10% rise [4][15]. - **Focus Media**: Preferred over Weibo due to expected growth from self-help initiatives [6]. Core Insights - **IP Derivatives Demand**: There is a growing demand for IP derivatives in China, with Damai positioned to benefit from its domestic sub-licensing business [3]. - **Long Video and Live-Streaming**: These sectors are entering a more favorable policy environment, with valuations currently below historical levels. Price targets for JOYY and HUYA have been lifted due to improving trends [4]. - **Gaming Sector**: Smaller game companies are experiencing a re-rating due to successful new titles, leading to raised earnings forecasts for 2025/26 [5]. - **Film Industry Challenges**: Film companies may face difficulties in re-rating due to muted industry growth and weaker visibility for fundamentals, leading to downgrades for Maoyan and others [6]. Additional Insights - **Branding Advertising**: The branding advertising industry is not expected to recover immediately, but Focus Media is seen as a better investment compared to Weibo due to its strategic initiatives [6]. - **Valuation Adjustments**: The report includes various valuation adjustments for companies based on earnings revisions and shifts to sum-of-the-parts (SOTP) valuation methods [15]. Market Performance - The report provides a detailed analysis of stock price performance over different time frames, indicating significant variances in performance among the companies covered [12]. Conclusion - The SMID Internet/Media sector in China is undergoing significant changes, with varying growth prospects across different segments. Companies like Damai and 37IE are favored for their growth potential, while challenges remain for the film industry and certain live-streaming platforms.