Summary of the Conference Call on the Gaming Industry Industry Overview - The A-share gaming companies are currently undervalued, with second-tier companies valued at approximately 15-18 times earnings, compared to 30 times for similar companies in Hong Kong, indicating potential for valuation improvement [1][3] - The competitive landscape in the gaming industry is easing, providing ample market space for second-tier companies [1] - The gaming industry is experiencing a recovery in demand, with a monthly growth rate of 22% in April, highlighting the growth potential of the sector [1][9] Key Insights - Mid-sized gaming products have exceeded expectations, such as Giant Network's "Supernatural Action Group" and G-bits' "M88," significantly improving profitability and positively impacting company financials [1][4] - The sales expense ratio for gaming companies has decreased year-on-year, with diverse marketing strategies like live streaming and community marketing reducing costs and improving ROI [1][8] - Major gaming companies are focusing on the operation of existing games rather than launching new big titles, creating opportunities for smaller companies to thrive in niche markets [1][10] Notable Products and Performance - Giant Network's "Supernatural Action Group" has achieved a monthly revenue of approximately 30-50 million, relying on word-of-mouth and minimal advertising [5][18] - G-bits' "M88" is expected to generate 150-200 million in its first month, contributing significantly to quarterly reports [5][20] - The game "Friendship Time" has shown strong performance, reaching the top of free charts, indicating a shift in the market dynamics favoring smaller developers [2][6] Market Dynamics - The supply side of the gaming industry has relaxed, with an increase in the number of game approvals, and the demand side is showing signs of recovery [9][14] - The overall gaming industry has maintained double-digit growth from January to April 2025, despite concerns about data accuracy due to low base effects from the previous year [11] Investment Opportunities - The gaming sector is currently valued at 15-20 times earnings, making it attractive compared to other high-valuation sectors [13][28] - Recommended companies include Giant Network, Kingsoft, and G-bits, with potential for further growth and investment returns [27] Policy Environment - Local governments have introduced supportive policies for the gaming industry, contributing to a more favorable policy environment [14] Future Outlook - The gaming industry is expected to continue its growth trajectory, with new product launches and existing titles maintaining strong performance [15][19][25] - The anticipated release of new titles like Tencent's "Fearless Covenant" and Kingsoft's "解神机" is expected to further enhance market dynamics [15][19] Conclusion - The gaming industry is positioned for growth with favorable market conditions, supportive policies, and a shift in competitive dynamics, making it an attractive sector for investment.

Group 1 - Lilith Games' self-developed shooting game "Far Light 84" is scheduled for a July test, which will be available on both PC and mobile platforms, potentially attracting market attention towards the "gaming + AI + esports" concept [1] - NetEase's turn-based pet-catching mobile game "Spirit Beast Adventure" will begin testing on June 19, featuring a unique blend of "vertical screen + pet-catching + home management" gameplay, targeting casual players and aiming for rapid annual revenue growth if a stable user base is formed [2] - Sunborn Network's "Girls' Frontline" issued an apology for server issues experienced after its June 12 launch, attributing the problems to an underestimation of server capacity, which may weaken market confidence in its future products [3]

Investment Rating - The report maintains a "Buy" rating for the company [6][10]. Core Insights - The report highlights the potential profit increment from the upcoming game "Yihuan," developed by the company's Huanta studio, which is expected to outperform the previous title "Hanta" in terms of revenue [1][3]. - The company has undergone significant organizational restructuring to enhance efficiency and market responsiveness, transitioning to a more product-centric studio system [2][31]. - The financial forecast predicts revenues of 67 billion, 108 billion, and 99 billion yuan for 2025-2027, with corresponding net profits of 6.3 billion, 17.1 billion, and 18.2 billion yuan [3][10]. Summary by Sections Investment Rating - The company is rated as "Buy" with a target price based on projected earnings growth [6][10]. Game Development and Competitive Advantage - "Yihuan" is positioned as a supernatural urban open-world RPG, utilizing Unreal Engine 5, which supports advanced graphics technologies [1][20]. - The game is expected to leverage the studio's prior experience and the current market trend towards open-world games, providing a first-mover advantage [1][27]. Organizational Changes - The company has streamlined its organizational structure, reducing employee count from 5,754 to 3,905, and divested non-core assets to improve operational efficiency [2][31][33]. Financial Projections - Revenue projections for 2025-2027 are set at 67 billion, 108 billion, and 99 billion yuan, with net profits of 6.3 billion, 17.1 billion, and 18.2 billion yuan respectively [3][10]. - The current price-to-earnings ratios are projected at 47, 17, and 16 for the years 2025, 2026, and 2027 [3][10].

Group 1 - The core viewpoint of the articles highlights the strong support from various Chinese provinces for the gaming industry to expand internationally, aiming to enhance the global influence of domestic games [1][5] - Zhejiang Province's measures, effective from July 10, 2025, focus on promoting Chinese culture abroad and improving international communication capabilities [1] - Shenzhen's plan emphasizes the development of digital trade and the establishment of public service platforms to support game companies in overseas expansion [1] - Guangdong's policies aim to create an industry cluster for game exports and encourage small and medium enterprises to participate in international markets [1] Group 2 - Data indicates that China's self-developed games are projected to generate overseas sales revenue of $18.557 billion in 2024, reflecting a year-on-year growth of 13.39% [1] - In May 2025, 33 Chinese game publishers ranked among the top 100 global mobile game publishers, collectively earning $2.02 billion, which accounts for 36.6% of the total revenue of the top 100 [3][4] - From January to May 2025, Chinese game publishers achieved a total global mobile game revenue of $10.25 billion, maintaining a revenue share of over 36% [4] Group 3 - The A-share gaming industry index has shown a year-to-date increase of 20.46%, ranking 6th among 124 secondary industry indices [5] - Companies like Glacier Network have seen significant stock price increases, with a year-to-date rise of over 42% [5] - The overall trend in the gaming sector is positive, with several indices reflecting upward movements due to supportive policies and industry growth [5][7]

Group 1 - Tencent is reportedly considering acquiring South Korean game developer Nexon for $15 billion (approximately 107.9 billion RMB) and has initiated discussions with the family of the late founder Kim Jung-woo [1] - Tencent has been in contact with Kim Jung-woo's family to explore the potential acquisition, with the family evaluating their options through consultations with advisors [1] Group 2 - GAC Toyota announced a partnership with Xiaomi, Huawei, and Momenta, integrating into Xiaomi's "Smart Car Home" ecosystem, with the first model, the Platinum Smart 7, set to open hardware ecosystem interfaces [6] - Future GAC Toyota models will support various Xiaomi ecosystem devices, including intercoms, car-mounted phone holders, smart fragrance systems, and physical buttons for the central control screen [6] Group 3 - Ant Group's Vice President revealed that Ant Group has initiated the application for a stablecoin license in Hong Kong and has engaged in multiple rounds of discussions with regulators [8] - Ant Group is accelerating investments and expanding collaborations in global financial asset management, focusing on the real-world application of AI, blockchain, and stablecoin innovations [8]

Market Overview - A-shares experienced a rebound with the Shanghai Composite Index surpassing 3400 points, closing up 0.52% at 3402.32 points, while the Shenzhen Component Index rose 0.83% and the ChiNext Index increased by 1.21% [1] - Key sectors leading the market included rare earths, auto parts, and gaming, while the innovative drug sector saw a pullback [1] Economic and Policy Insights - Recent US-China trade talks resulted in a consensus on key economic issues, reflecting a commitment to implement agreements from previous discussions [1] - Despite fluctuations in tariff policies, China's exports maintained steady growth, indicating macroeconomic resilience [1] - The potential for counter-cyclical policies in China may provide positive support for asset prices, suggesting manageable risks for A-shares in the near term [1] Investment Strategies - With long-term capital inflows, the downward space for the market appears limited, and investors are encouraged to consider strategies like dollar-cost averaging and grid trading for opportunistic investments [1] - The upcoming annual dividend distributions in June and July are expected to enhance the appeal of dividend-paying assets [1] Dividend and ETF Focus - The new policies encouraging dividend distributions among listed companies are beneficial for state-owned enterprises, enhancing investor returns and supporting valuation recovery [2] - The Cash Flow ETF and Dividend State-Owned Enterprise ETF have both announced monthly dividends, with the latter achieving 14 consecutive months of distributions [2] - The Cash Flow ETF has outperformed the CSI Dividend Index and the CSI 300 Index over the past nine years, making it an attractive option for investors seeking consistent cash flow [2] Gaming Sector Developments - The Gaming ETF saw a 2.42% increase, driven by the successful launch of new games and the anticipation of major IP products in the second half of the year [3] - Collaborations between gaming companies and AI technology firms are enhancing user experiences and expanding commercial applications within the gaming industry [3][4] - The trend of developing and selling IP-related products is gaining traction among leading film and gaming companies, contributing to revenue growth [4]

Group 1 - Tencent's new game "Return Ring" showcases a unique time-loop theme and innovative gameplay, generating significant market interest and potential [1] - The game is positioned as a competitive entry in the 2D open-world genre, drawing comparisons to "Baldur's Gate" in terms of narrative style and mechanics [1] Group 2 - Sanbai Network's "Girls' Frontline" Steam version is set to launch on June 12, following a delay due to pending Steam approval [2] - The company has implemented a compensation strategy for players affected by the delay, which includes in-game rewards to maintain player loyalty and satisfaction [2] Group 3 - NetEase's popular mobile game "Justice" has announced its second anniversary expansion, scheduled for June 27, featuring cross-industry collaborations [3] - The expansion is expected to provide a short-term boost to NetEase's market performance, reflecting the company's strong capabilities in game development and player engagement [3]

Group 1 - Paper Games' title "Infinite Warmth" won the "Visual and Graphics" category at the 2025 Apple Design Awards, marking the first time in four years that a domestic game has received such an award, enhancing the company's brand value [1] - The award signifies that "Infinite Warmth" has reached international standards in artistic style and technical performance, including lighting rendering and character modeling [1] Group 2 - Shift Up announced that the PC version of the highly anticipated action RPG "Stellar Blade" has begun preloading and will officially unlock on June 12, with a free trial available on Steam [2] - The release of the PC version is expected to expand the user base, particularly among action game enthusiasts in Asia and Europe, potentially boosting the market value of Shift Up's parent company if preloading and trial data show strong performance [2] Group 3 - Funcom's sci-fi open-world multiplayer game "Dune: Awakening" has officially launched, with various editions available on Steam at different price points [3] - The game's release is a key product for Funcom this year, and positive market reception could solidify its position in the genre and contribute to the company's revenue growth [3]

Core Insights - The Apple Design Awards recognized the game "Infinite Warmth" by Paper Games, marking the first time in four years that a Chinese game has won in the "Visual and Graphics" category, making Paper Games the only Chinese game company to receive an award this year [1][2] Group 1: Game Features and Innovations - "Infinite Warmth" is described as a "collect beautiful open world" game, with a unique gameplay focus on collecting diverse clothing rather than weapons, receiving high praise from Apple for its innovative approach [1] - The game is the first open-world title developed cross-platform using the UE5 engine, noted for its stunning visual presentation and artistic design, earning a score of 9 from IGN and an 80 from Metacritic based on 29 international media outlets [1] - Paper Games implemented over a hundred self-developed innovative solutions to showcase intricate fabric details and impressive lighting effects, categorizing clothing textures for dynamic representation based on material physics [1] Group 2: Player Engagement and Reception - The game features a fully upgraded photography function, allowing players to capture beautiful moments with adjustable focus, lighting, aperture, filters, and dynamic clothing effects based on different weather and scenes [2] - The light combat and nurturing gameplay design has sparked enthusiastic discussions among players, with the character "Warm" and her companion "Big Meow" winning the hearts of global players [2] - The CEO of Paper Games expressed surprise at the immediate player engagement, noting that the average online duration on the first day indicated players were quickly immersed in the game [2]

Core Insights - The Apple Worldwide Developers Conference (WWDC) 2025 featured the Apple Design Awards, where Chinese game developer Paper Games won the "Visual and Graphics" category for their game "Infinite Warmth," marking the first time in four years that a domestic game has received such an award [1][4] - "Infinite Warmth" is the fifth installment in the Warmth series, launched globally on December 5, 2024, and is notable for being the first open-world game developed on the UE5 engine across multiple platforms [1][4] - The game received high praise from international media, scoring 9 out of 10 from IGN and 80 on Metacritic, highlighting its deep exploration gameplay, engaging storyline, and visually stunning costumes [1][4] Company and Industry Highlights - Paper Games implemented over a hundred self-developed innovations to enhance fabric details and lighting effects, allowing for realistic physical dynamics in clothing [4] - The game combines fashion collection with open-world exploration, which has resonated well with players, leading to discussions and enthusiasm both domestically and internationally [4] - The CEO of Paper Games, Yao Runhao, noted that players quickly immersed themselves in the game, as indicated by the average online duration on the first day [4] - Paper Games has a strong relationship with Apple, having quickly announced a Vision Pro version of "Love and Deep Space" following the release of Apple's MR device, Vision Pro, indicating Apple's recognition of Paper Games' technical capabilities [5] - Tim Cook, Apple's CEO, visited Paper Games in Shanghai to experience their games, further solidifying the partnership between the two companies [5]