Summary of Mobile Gaming Industry Conference Call Industry Overview - The global mobile gaming market is projected to see a year-over-year (YoY) decline of 3% in January 2026 according to Sensor Tower data [1] - The United States remains the largest market, accounting for 31% of total revenue, followed by China at 19% and Japan at 13% [1] - In January 2026, the U.S. mobile gaming market experienced a YoY decline of 2%, while China and Japan saw more significant declines of 14% and 8%, respectively [1] China Market Insights - The domestic gaming market in China is expected to achieve a YoY revenue growth of 8% in 2025, with mobile gaming being the largest segment, contributing 73% of total revenue [1] - The client-based gaming segment is also showing strong growth, with a projected YoY increase of 15%, while mobile gaming is expected to grow at 8% YoY [1] - Chinese game exports are anticipated to continue their high growth trajectory, with a YoY revenue increase of 10% [1] Regulatory Environment - In January, the National Press and Publication Administration issued 177 new domestic online game licenses, representing a YoY increase of 44%, indicating a robust supply of new games in the future [2] Market Performance - In January, most gaming stocks saw an increase, with notable gains in Hong Kong stocks such as Bilibili and Xindong, as well as A-share companies like Huatuo, Perfect World, Kaiying, and Sanqi [2] Data Highlights - Bilibili's new game "Dudu Face Prank" launched in Q4 2025 has shown significant revenue growth, with a QoQ increase of 21% in December and 46% in January 2026, contributing to an overall QoQ revenue increase of 5% and 14% [2] - Xindong's game "Xindong Town" launched in January 2026 has seen an extraordinary QoQ revenue increase of 516%, significantly boosting overall revenue by 99% [2] - Huatuo's overall revenue continues to grow YoY, with its game "Delicious Journey" showing a QoQ revenue increase of 30% and 33% in December and January, respectively [2] - Giant's core product "Supernatural Action Team" recorded a QoQ revenue increase of 41% in January 2026, contributing to an overall revenue growth of 28% QoQ and 199% YoY [2] Future Outlook - Attention is recommended on the testing phases of new games from NetEase ("Sea of Forgetting") and Perfect World ("Different Ring"), as well as monitoring revenue performance during the Spring Festival period [3]

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.

Investment Rating - The investment rating for Century Huatong is "Buy" with a target price of Rmb10.0 based on an 18x 2025E PE, reflecting a 15% premium to the current A-share gaming average of 16x [16] - XD is rated "Hold" with a target price of HK$44, based on a 19x 26E EPS, set at a 20% premium to China's online gaming peers [18] Core Insights - The China Online Gaming Industry is expected to see increased topline visibility and quality earnings growth due to more game companies preparing to launch key titles in 2Q/3Q25, which may lead to re-rating opportunities [1] - Century Huatong is highlighted as a preferred investment choice due to its successful operations of Whiteout Survival and significant revenue size among A-share gaming peers [16] - XD is considered an attractive beta play in a risk-on environment, leveraging its self-development capabilities and unique gaming community platform [1][18] Company-Specific Summaries Century Huatong - Century Huatong's overseas grossing from Kingshot doubled month-over-month in May, generating over US$75 million, indicating strong growth potential [2] - The company is expected to benefit from the performance of its titles, particularly Kingshot and Whiteout Survival, which are projected to contribute to greater topline upside in 2025E [2] 37 Interactive - 37 Interactive is set to launch Soul Land MMO on July 11, with pre-registration exceeding 8 million, indicating strong initial interest [3] Kingnet - Kingnet plans to launch Nobunaga's Ambition overseas on June 18, developed in collaboration with Tanda Games and Koei Tecmo [4] Perfect World - Perfect World is initiating the second beta for Neverness to Everness, with recruitment ongoing until June 17, suggesting potential for further game optimization and upgrades [5] XD - XD launched Etheria: Restart on June 5, achieving over 1 million downloads within two days and ranking in the top 3 for iOS downloads in several countries [6] - The title is expected to generate significant revenue, with estimates suggesting first-month grossing could reach Rmb100 million, with 50% from the US market [6] G-Bits - G-Bits launched Scepter & Sword on May 29, achieving a strong initial ranking in iOS downloads, although its long-term performance remains uncertain due to aging core game titles [8]