Core Insights - The article provides a summary of the financial performance of major Japanese gaming companies for the third quarter of 2025, highlighting trends and challenges faced by each company [3][4]. Company Performance Overview - **Koei Tecmo**: Reported revenue of 31.268 billion yen (approximately 1.441 billion RMB), a year-on-year decline of 11.2%. Net profit was 13.465 billion yen (approximately 619.2 million RMB), down 15.7% [5][6]. - **CAPCOM**: Released the Nintendo Switch 2 version of "Street Fighter 6," relying on nostalgia-driven sales rather than new major titles [4]. - **KONAMI**: Launched remakes of classic games and new titles, including "Silent Hill f," contributing to its performance [4]. - **SQUARE ENIX**: Adjusted its annual performance forecast downward due to special losses from organizational restructuring [4]. - **SEGA**: Experienced significant expenses related to acquisitions, impacting its financial results [4]. - **Bandai Namco**: New releases like "SD Gundam G Generation Eternal" and "Elden Ring: Nightfall" performed well [4]. Financial Highlights - **Koei Tecmo's Q3 Financials**: - Revenue: 31.268 billion yen (approximately 1.441 billion RMB), down 11.2% year-on-year - Operating profit: 7.964 billion yen (approximately 366.49 million RMB), down 25.2% - Ordinary profit: 17.795 billion yen (approximately 818.57 million RMB), down 15.3% - Net profit: 13.465 billion yen (approximately 619.2 million RMB), down 15.7% [5][6][8].

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]

Core Viewpoint - The gaming sector has shown continuous growth, with revenue increasing for six consecutive quarters, and significant improvements in gross profit margins and net cash flow, indicating a robust recovery and potential for further investment opportunities [4][7][24]. Financial Performance - Total revenue for Q2 2025 reached 22.18 billion, representing a year-on-year growth of 22.3% and a quarter-on-quarter increase of 3.6%, marking the sixth consecutive quarter of positive sequential growth [7]. - Gross profit for Q2 2025 was 15.81 billion, also reflecting a sixth consecutive quarter of sequential growth [5][7]. - The overall gross margin for Q2 2025 was 71.3%, continuing an upward trend since Q3 2020, driven by a shift towards non-revenue-sharing platforms and an increase in self-developed game revenues [5][6]. Cost Management - R&D expense ratio has been on a downward trend for ten consecutive quarters, indicating a more efficient allocation of resources as companies optimize projects [6][13]. - Management expenses decreased significantly in Q2 2025, with a management expense ratio of 6%, the lowest since 2019 [13]. - Sales expenses remained stable, with a slight increase, indicating effective cost control in customer acquisition [13]. Profitability - The overall net profit attributable to shareholders for Q2 2025 was 4.16 billion, a substantial increase from 2.47 billion in the same period last year, with a net profit margin of 18.7% [14][23]. - The adjusted net profit for Q2 2025 reached 4.01 billion, marking a new high since 2019 [14]. Market Dynamics - The top five companies by revenue in Q2 2025 were ST Huatuo, Sanqi Interactive, Perfect World, G-bits, and Shenzhou Taiyue, with a combined market share of 79.9% [18]. - The top five companies by net profit were ST Huatuo, Sanqi Interactive, Kaiying Network, Giant Network, and G-bits, with a combined profit share of 81.3% [23]. Investment Outlook - The current market rally is driven by EPS improvements, with the gaming sector's valuation remaining stable and not showing signs of a bubble, as the PE-TTM ratio is around 33x, down from a peak of 45x [24]. - The sector is expected to continue benefiting from policy improvements and operational efficiencies, with recommendations to focus on companies like ST Huatuo, Giant Network, Perfect World, G-bits, and Kaiying Network [24].