Summary of Key Points from the Equity Research Report on the Gaming Sector Industry Overview - The gaming sector in China is expected to perform strongly in the second half of 2025, with the Wind Internet Games Index rising 17% since June 2025, compared to a 7% increase in the CSI 300 index [2][10] - The sector is currently trading at a 2026 estimated average price-to-earnings (PE) ratio of 16x, slightly below the historical average of 17x [2][28] Core Insights 1. **Gaming Consumption Growth**: Domestic mobile gaming revenue reached RMB125.3 billion in the first half of 2025, marking a year-on-year increase of 16.6% [2][10] 2. **Product Releases**: A-share gaming companies are planning to increase product releases in the second half of 2025, which is expected to drive sustained earnings growth [2][10] 3. **Profit Margin Optimization**: Game developers are optimizing channel costs, which may lead to wider profit margins [2][10] Company-Specific Highlights Perfect World (002624 CH) - Current Price: RMB15.91, Target Price: RMB20.90, Rating: Buy - The game 'NTE' is anticipated to be a major success in the ACG category, with expected gross billing of approximately RMB5 billion in the first year post-launch, contributing to 73% of the company's net profit in 2026 [4][10] - Projected net profit growth of 143% year-on-year in 2026 [4][10] Ultrapower (300002 CH) - Current Price: RMB13.49, Target Price: RMB15.60, Rating: Buy - Key products 'Staller Sanctuary' and 'Next Agers' are expected to see large-scale commercialization starting in Q3 2025, contributing to a projected CAGR of 17% in net profit from 2025 to 2027 [5][10] Kingnet Network (002517 CH) - Current Price: RMB19.76, Target Price: RMB25.20, Rating: Buy - Expected net profit CAGR of 18% from 2025 to 2027, with a target PE multiple of 21x [9][10] Sanqi Entertainment (002555 CH) - Current Price: RMB17.40, Target Price: RMB23.80, Rating: Buy - Projected net profit CAGR of 10% from 2025 to 2027 [9][10] Key Product Tracking 1. **Game Exports**: Overseas revenue of Chinese games grew 11% year-on-year to USD9.5 billion in 1H25 [3][10] - Diandian Interactive's 'Whiteout Survival' ranked No. 1 in overseas revenue for the first half of 2025 [3][10] 2. **Commercial Promotions**: Giant Network's 'Chao Zi Ran Xíng Dong Zu' launched in July, achieving a peak iOS ranking of No. 11 [3][10] 3. **Beta Tests**: Perfect World's 'NTE' completed its second beta test in June, showing significant performance improvements [3][10] Market Trends and Risks - The gaming sector is experiencing rapid growth, particularly in overseas markets, with leading games performing well [8][10] - Risks include delayed game launches, regulatory changes, and potential operational challenges in overseas markets [9][10] Conclusion - The gaming sector in China is poised for strong growth in the latter half of 2025, driven by robust consumption trends, new product launches, and improved profit margins. Key companies like Perfect World and Ultrapower are well-positioned to capitalize on these trends, with favorable ratings and target prices indicating potential upside for investors [2][10]