Core Viewpoint - The gaming sector is experiencing slight fluctuations, with the gaming ETF (159869) showing a minor decline after previously rising over 0.5%. The ETF's scale reached 11.389 billion yuan as of November 12, enabling investors to easily invest in leading A-share gaming companies [1][2]. Group 1: Game Industry Developments - Tencent's "Honor of Kings" announced an optimization of its matchmaking mechanism, responding to player demands and judicial pressure. The new features include increased rank weight, visible matchmaking ranks, and a new challenge mechanism [1][2]. - The optimization aims to enhance competitive fairness and solidify the game's user base, potentially setting a new operational benchmark in the gaming industry [2]. Group 2: Market Performance - The gaming ETF (159869) tracks the Zhongzheng Animation and Gaming Index, reflecting the overall performance of A-share listed companies in the animation and gaming industry. The ETF presents investment opportunities in this sector [2].

Core Insights - The gaming industry has emerged as a new focal point during the Double Eleven shopping festival, alongside traditional e-commerce platforms and apparel brands [1][2] - Various gaming companies, including Tencent, NetEase, and miHoYo, have adopted diverse strategies for live-streaming sales, moving beyond traditional discounting to engage players more interactively [1][3] Group 1: Marketing Strategies - Live-streaming sales have become a new extension of the gaming industry's content ecosystem and business model [2] - Companies are utilizing live-streaming to create entertaining consumption scenarios and transactional content, enhancing player engagement [3][16] - Tencent's games focus on resource leverage and limited-time offers, with high DAU products like "Escape from Tarkov" achieving over 10 million DAU [3][9] Group 2: Player Engagement - Live-streaming sessions serve as platforms for player interaction, allowing them to express concerns and ask questions about game balance and updates [10][28] - The live-streaming format has transformed into a space for both sales and community engagement, fostering trust and loyalty among players [10][27] Group 3: Sales Performance - NetEase's "Nirvana in Fire" mobile game achieved significant sales during its live-streaming event, ranking first on the sales leaderboard [7][9] - The "Nirvana in Fire" game previously generated over 25 million yuan in sales during a four-hour live-stream in August [9] Group 4: Industry Trends - The rise of live-streaming sales reflects a broader trend in the gaming industry, driven by increasing advertising costs and the need for more efficient growth strategies [28][30] - The gaming live-streaming market has seen a 56% increase in consumption scale compared to early 2024, with mobile game live-streaming accounting for over 30% of total ad spending [30]

Core Insights - The A-share gaming industry is experiencing significant growth, with many companies reporting increased revenues and profits in the third quarter of 2025, driven by a focus on high-quality game development and international expansion [5][7][9]. Revenue and Profit Performance - In the third quarter, 13 out of 23 A-share gaming companies reported year-on-year revenue growth, with total revenue reaching 299.99 billion yuan, a 29.29% increase from 232.03 billion yuan in the same period last year [7]. - The net profit for these companies collectively reached 58.15 billion yuan, doubling from 29.05 billion yuan year-on-year [7]. - For the first three quarters of 2025, total revenue was 838.40 billion yuan, up 25.03% from 670.56 billion yuan, while net profit increased by 80.64% to 138.42 billion yuan [7]. Key Company Performances - Century Huatong achieved a third-quarter revenue of 100.16 billion yuan, a 60.19% increase, and a net profit of 17.01 billion yuan, up 163.78% [11]. - Jiubang Network reported a revenue of 19.68 billion yuan in the third quarter, a 129.19% increase, with a net profit of 5.69 billion yuan, up 307.7% [13]. - Giant Network's third-quarter revenue was 17.06 billion yuan, a 115.63% increase, with a net profit of 6.40 billion yuan, up 81.19% [14]. - Perfect World reported a revenue of 17.26 billion yuan, a 31.45% increase, and a net profit of 1.62 billion yuan, up 176.59% [15]. Market Trends and Future Outlook - The gaming industry is entering a "golden decade," supported by favorable policies and a shift towards high-quality game development rather than reliance on imitation [5][9]. - The number of game licenses issued in 2025 has already surpassed the total for 2024, indicating a robust pipeline for new game releases [9]. - Companies like Century Huatong are gaining global recognition, with successful titles like "Whiteout Survival" achieving over 200 million downloads [12]. Challenges and Competitive Landscape - Some companies, such as 37 Interactive Entertainment, are facing challenges with revenue declines, attributed to product lifecycle issues and regulatory scrutiny [17][18]. - The competitive landscape is shifting, with traditional companies needing to innovate to keep pace with emerging trends and consumer preferences [19].

Core Insights - The gaming industry has experienced explosive growth over the past decade, and the future direction for gaming companies is increasingly focused on new technologies like artificial intelligence (AI) and cloud computing, which are expected to reshape the industry's value chain [1] - A significant number of A-share gaming companies reported a decrease in sales expenses year-on-year in the first three quarters of this year, indicating a shift in strategy away from traditional user acquisition methods [1][12] Company Performance - Youzu Interactive has seen substantial profit growth this year, with a reported revenue of 1.019 billion yuan, a year-on-year increase of 2.2%, and a net profit of 76.36 million yuan, reflecting a staggering year-on-year growth of 1374.6%, ranking first among 23 companies [2][3] - Kunlun Wanwei has adopted an aggressive AI strategy, investing 970 million yuan in 2023 and planning to increase this to 1.543 billion yuan in 2024. The company reported a revenue of 2.072 billion yuan in Q3, a 56.16% increase year-on-year, but still faced a net loss of 666 million yuan [6][7] - Century Huatong has established an AI Development and Management Committee to systematically integrate AI technology across all business areas, aiming to enhance operational efficiency and user experience [8] Strategic Shifts - The traditional "buying traffic" strategy is becoming less effective, with many companies realizing that retaining users relies more on game quality than on advertising alone. This shift is evident as over half of the gaming companies reported a decrease in sales expenses [12] - Companies like Youzu Interactive and Kunlun Wanwei are focusing on AI as a second growth engine, with Youzu launching its AI tool platform "YOOZOO.AI" to enhance operational efficiency and user experience [3][5] Market Trends - The gaming industry is witnessing a trend where companies are moving away from heavy reliance on user acquisition through advertising, as exemplified by the reduction in sales expenses by major players like Sanqi Interactive [12] - Despite the overall decline in sales expenses for many companies, some, such as Century Huatong, continue to increase their marketing expenditures significantly, indicating a divergence in strategies within the industry [12]

AI Applications - The October AI application rankings show ChatGPT, Doubao, Quark, Baidu Cloud, and Gemini as the top five globally [1][2] - Doubao surpasses Quark to become the leading domestic application with a monthly MAU of 159 million, reflecting a 6.28% month-over-month growth [1][2] - Other notable monthly active users include Tencent Yuanbao at 73 million, Deepseek at 72 million, and ByteDance's Jimeng AI at 4.511 million, with a 5.16% month-over-month increase [1][2] - Significant events in AI include OpenAI's $38 billion computing partnership with Amazon, the release of the Kimi K2Thinking model, iFlytek's launch of the Xunfei Spark X1.5 and related AI products, and OpenAI's introduction of GPT-5-Codex-Mini [2] Gaming - The top three games on the iOS weekly sales chart as of November 6 are "Honkai: Star Rail," "Honor of Kings," and "Delta Force" [3] - The game "Supernatural Action Group" launched a new character and ranked between 15-25 during the week, while G-bits' "Staff Sword Legend" ranked around 40 [3] - A partnership between Shengqu Games and Mango TV aims to create a new ecosystem for mini-games, and Bilibili's single-player game "Escape from Duckkov" has sold over 3 million copies [3] Film and Television - The total box office for the week of November 1-7 reached 207 million yuan, with "Improv Murder" as the top film, earning 42.11 million yuan and accounting for 20.3% of the weekly box office [3] - Upcoming films include "Demon Slayer: Infinity Castle Chapter One" and "Now You See Me 3," with high anticipation levels indicated by 579,000 and 284,000 people wanting to watch, respectively [3] - "Zootopia 2" is scheduled for release on November 26, and "Avatar: Fire and Ash" on December 19, highlighting a rich supply of imported films [3]

Group 1 - The gaming sector is experiencing fluctuations, with the gaming ETF (159869) down nearly 0.5% as of November 11, 2023, and various stocks showing mixed performance [1] - As of November 10, 2023, the gaming ETF (159869) has a product scale of 11.554 billion yuan, facilitating investors to easily invest in A-share gaming leaders [1] Group 2 - According to the "Q3 2025 China Gaming Industry Report" by Gamma Data, the actual sales revenue of the Chinese gaming market for July to September 2025 was 88.026 billion yuan, reflecting a quarter-on-quarter growth of 6.96% but a year-on-year decline of 4.08% [2] - The client game market in China generated actual sales revenue of 20.29 billion yuan during the same period, with a quarter-on-quarter increase of 16.05% and a year-on-year increase of 19.88% [2] - The mobile gaming market in China achieved actual sales revenue of 64.389 billion yuan, with a quarter-on-quarter growth of 4.39%, although it saw a year-on-year decline of 1.93% due to a high revenue base from the previous year [2] - The overseas market for self-developed games from China generated actual sales revenue of 4.994 billion USD, with a quarter-on-quarter increase of 6.34% but a year-on-year decline of 3.39% [2] - Key products like "Kingshot" and "Last Z: Survival Shooter" have played a crucial role in driving market growth during this period [2] - The gaming sector is catalyzed by multiple factors including AI, content, and commercialization model transformations, with the gaming ETF (159869) tracking the performance of A-share listed companies in the anime and gaming industry [2]

Group 1 - The gaming sector showed fluctuating performance on November 11, with the gaming ETF (159869) slightly rising. Key stocks like Guomai Culture, Youzu Network, and Giant Network saw significant gains, while Huali Technology, Perfect World, and others experienced declines. As of November 10, the gaming ETF's product scale reached 11.554 billion yuan, facilitating investors' access to leading A-share gaming companies [1] - The official announcement from "Peace Elite" regarding the first "Peace Elite Women's Competitive Showcase" in collaboration with Xiaohongshu Games is set for November 15. The event will feature 16 qualified hosts and 28 participants competing in various segments, including a game-themed transformation show and talent displays. This collaboration aims to innovate the traditional competitive model and expand the female user market, enhancing brand diversity [1] - Open-source securities highlighted the strong performance of leading mobile games overseas, with companies like Xindong and Century Huatong achieving significant revenue growth through successful game operations and content updates. The industry is experiencing sustained upward momentum, and the gaming ETF (159869) closely tracks the China Securities Animation and Gaming Index, focusing on core assets in the A-share animation and gaming industry [2] Group 2 - The gaming sector is expected to maintain long-term growth driven by AI technology innovation, content ecosystem upgrades, and the evolution of commercialization models. This growth trajectory is supported by the positive performance of new and existing games, as well as the successful testing and sales of multiple new titles [2]

Core Viewpoint - Century Huatong Group has successfully applied to remove the risk warning on its stock, which will be lifted on November 12, 2025, following a series of corrective measures and improvements in corporate governance and financial performance [2][4][3]. Financial Performance - In Q3 2025, Century Huatong achieved a quarterly revenue of over 10 billion yuan, marking a 60.19% increase compared to the same period last year [5]. - For the first nine months of 2025, the total revenue reached 27.22 billion yuan, surpassing the entire revenue of the previous year [4][5]. - The net profit for the same period was 4.36 billion yuan, reflecting a year-on-year growth of 141.65% [4][5]. - The operating cash flow for the first nine months was 6.28 billion yuan, an increase of 81.33% year-on-year [4]. Corporate Governance and Compliance - Century Huatong has implemented 23 revised regulations across six categories to enhance corporate governance and risk management in response to previous regulatory penalties [4]. - The company has completed the rectification of issues identified by regulatory authorities and received an audit report confirming the correction of prior accounting errors [4]. Market Position - As of November 10, 2025, Century Huatong's market capitalization reached 130.8 billion yuan, more than tripling from 38 billion yuan in the same period last year [6]. - The company ranks first among A-share gaming companies in terms of revenue and profit for the first three quarters of 2025, driven by strong growth in overseas gaming business and stable domestic performance [5].

Core Insights - AI workflows are a key focus for many companies, aiming to optimize management, production, and communication processes to reduce costs and achieve significant advancements over traditional enterprises [1] - Companies are still exploring how to effectively implement AI, often approaching it with caution due to the high costs involved in project management and the skepticism surrounding AI's reliability [1] - Despite the hesitance, AI offers clear benefits, such as assisting in meetings, optimizing presentations, and generating low-cost content, which can lead to substantial cost savings and competitive advantages [1] Company-Specific Insights - 37 Interactive Entertainment is at the forefront of AI application in the gaming industry, having invested in AI since 2018 and developing their proprietary AI model "Xiao Qi" for various business functions [4][11] - The AI capabilities of "Xiao Qi" include efficient meeting minutes generation, AI customer service with an accuracy rate of 80%, and AI translation for over 85% of their overseas games with a 95% accuracy rate [6][4] - The company has built a comprehensive AI workflow that integrates AI into various business areas, enhancing productivity and allowing creative teams to focus on design rather than repetitive tasks [11][8] Industry Trends - The current trend indicates that AI serves more as an assistant to creators rather than a replacement, enhancing productivity in creative processes, such as generating over 500,000 2D images in a quarter with an 80% efficiency increase [8][7] - The application of AI is evolving through three stages: awareness and basic usage, integration as a supportive tool, and the development of AI-driven products, with 37 Interactive Entertainment currently in the second stage [13][15] - The industry recognizes that while AI can significantly alter production modes, human oversight remains essential, as creators must make informed choices based on AI-generated outputs [17][19]

Summary of Giant Network Group (002558 CH) Equity Research Report Company Overview - **Company**: Giant Network Group - **Ticker**: 002558 CH - **Sector**: Software - **Market Cap**: CNY 70,289 million (USD 9,871 million) as of 03 Nov 2025 Key Financial Highlights - **3Q Revenue**: Increased 116% year-on-year to CNY 1,706 million - **3Q Net Profit**: Grew 81% year-on-year to CNY 640 million, below estimates by approximately 17% due to overestimated revenue bookings - **Contract Liabilities**: Increased 50% quarter-on-quarter in 3Q, indicating future revenue recognition from previous billings [2][20][24] Core Insights - **Supernatural Action Squad**: - Achieved solid daily active users (DAU) and billings post-summer holidays, ranking 8th among iOS top-grossing games as of 31 October [2][3] - Expected to drive long-term growth with significant commercialisation potential, including promotions during holiday seasons [3][12][33] - Future overseas launch in 2026 anticipated to contribute incremental revenue [3] - **Earnings Estimates**: - Revenue estimates for 2025-2027 raised by 8.3%, 18.3%, and 36.4% respectively, reflecting strong DAU performance [4][24] - Net profit estimates for the same period increased by 2.1%, 19.5%, and 25.8% respectively [27] - **Target Price Adjustment**: - Target price raised to CNY 51.80 from CNY 43.30, implying a potential upside of approximately 43% from current levels [5][32] Growth Opportunities - **User Growth**: The game is still in the early stages of user growth, with significant DAU increases noted during peak seasons [3] - **ARPU Potential**: There is substantial upside for average revenue per user (ARPU) as many paid features are yet to be developed [3] - **Product Pipeline**: Upcoming products like Ming Jiang Sha and Five Thousand Years are in testing phases, with expected launches in late 2025 or early 2026 [3] Financial Ratios and Valuation - **2025-2027 Net Profit CAGR**: Estimated at 41%, above the peer average of 29% [5][32] - **PE Ratio**: Target PE multiple maintained at 25x, above the industry average forward PE of 16x for 2026 [5][32] - **EPS Estimates**: Adjusted EPS for 2026 raised to CNY 2.07 from CNY 1.73 [5][8] Risks and Considerations - **Product Launch Delays**: Potential delays in game launches could lead to earnings volatility [37] - **Gross Billings Uncertainty**: Risks associated with gross billings and lifecycle of game products due to market conditions and competition [37] - **Regulatory Risks**: Stricter regulations could impact game launches and earnings [37] Conclusion - **Investment Recommendation**: Maintain Buy rating with a revised target price of CNY 51.80, supported by strong growth prospects from Supernatural Action Squad and upcoming product launches [5][32][33]