Core Insights - Perfect World was awarded the "2025 Annual Digital Ecological Leading Enterprise Case" at the "Breaking Waves · Coexistence - 2025 China Digital Industry Ecological Conference" for its significant contributions to building a healthy and sustainable digital ecosystem [1] - The company has established a global strategy of "global production, global distribution, and global partnerships," exemplified by the creation of the global IP "Very Hero" through collaboration between its Chinese and French teams [1] - Perfect World's multi-platform open-world game "Tower of Fantasy" launched in 2022 topped the iOS game charts in over 40 countries and regions, indicating strong overseas user acceptance [1] - The company is developing an original supernatural urban open-world RPG game "Yihuan," which has completed its second domestic test and first overseas test, receiving positive feedback from players [1] - Perfect World aims to provide a seamless gaming experience across PC, mobile, and console platforms for global players [1] Industry Insights - The recent global success of Chinese IP products like Labubu and "Black Myth: Wukong" can be attributed to three key factors: hard power, confidence, and empathy [2] - The Chinese cultural industry has developed the necessary capabilities for top-tier IP creation, including content development, technical production, and brand output [2] - Cultural confidence among new-generation creators allows for effective storytelling and revitalization of traditional culture [2] - The rise of Generation Z has shifted the focus towards emotional engagement as a fundamental logic for IP success, making it crucial for companies to resonate deeply with global users [2] - Cultural products face unique challenges in international markets, including ideological, legal, and infrastructural barriers [2] - Legal compliance is essential for companies venturing abroad, with respect for diversity being a prerequisite for acceptance [2] - Perfect World plans to enhance its global capabilities and integrate into the global industry chain to promote Chinese culture internationally [2]

Core Insights - Jiangsu province has 38 enterprises and 7 projects listed as key cultural export entities for 2025-2026, covering various fields such as film, animation, gaming, music, and arts and crafts [1] - The province is leveraging a "traditional culture + digital technology" dual-drive model to enhance cultural exports, focusing on three innovative modes: an animation and gaming "new fleet," platform aggregation to build an ecosystem, and digital empowerment of traditional culture [1] Group 1: Animation and Gaming Cluster - Animation and gaming enterprises account for nearly half of the 38 key cultural export companies, with 18 firms primarily located in Suzhou, Wuxi, and Changzhou [2] - Wuxi has developed a complete animation and gaming industry chain, with leading companies like Wuxi Beishi participating in over 70 international films, including "Captain America: Civil War" and "Star Wars: The Force Awakens" [2] - Technological innovation is becoming the core competitive advantage for Jiangsu's animation companies, with firms like Yuanli Animation utilizing advanced systems for high-precision digital content creation [2][3] Group 2: Digital Content Industry - Suzhou Industrial Park has established a digital content industry cluster focused on gaming and animation, with notable achievements from companies like Ailuo Information and Snail Digital [3] - The immersive experience and interactivity of games serve as new cultural carriers, enhancing the international visibility of Chinese culture [3] Group 3: Platform Aggregation - The Yixing Cultural Export Promotion Platform has successfully transformed from a single exporter to a collective platform, integrating over 20 local SMEs to promote "Yixing ceramics" [4] - This platform approach reduces costs and enhances the overall impression of "Eastern aesthetics" in international markets [4] Group 4: Policy Support - Suzhou Industrial Park has implemented targeted support policies for the animation and gaming industry, providing financial incentives for award-winning original works and subsidies for participation in international events [5] - The National Cultural Trade Base in Nanjing has created a one-stop service system for cultural export enterprises, with over 600 companies registered and significant revenue growth [5] Group 5: Cultural Exchange and Innovation - Nanjing is actively expanding its international connections, having established friendly city relationships with 25 countries, facilitating cultural exchanges that benefit enterprises [6] - The integration of traditional culture with digital technology is exemplified by projects like the Jiangsu Women's Ethnic Orchestra's use of 3D holographic projection to create immersive experiences [8] Group 6: Globalization of Cultural Expression - Jiangsu enterprises are exploring ways to break cultural barriers and achieve resonance in global markets, with successful examples in both traditional and digital sectors [8][9] - The gaming industry demonstrates strong cultural transformation capabilities, with companies like Suzhou Lezhi Software and Huanta Network incorporating local cultural elements into their products [8][9]

Summary of Conference Call Notes Company and Industry Overview - The conference call primarily discusses **Perfect World** and the **gaming industry** in general, with a focus on upcoming game releases and market trends [2][6][10]. Key Points and Arguments - **IP Derivative Sales**: The sales of the **Nezha IP** derivatives have reached several hundred billion GMV, with a target approaching 1,000 billion, indicating significant market potential for IP derivatives that could impact stock valuations of related companies [2][4]. - **New Consumption in Hong Kong**: In the new consumption sector in Hong Kong, **Pop Mart** and **Brook** have shown outstanding performance, with Pop Mart's expected PE exceeding 40 times, reflecting high growth expectations from the market [2][5]. - **Game Product Performance**: **Giant Network's** supernatural action group has seen a notable increase in revenue, while **ST Huatong's King's Raid** continues to show growth, indicating strong operational performance of gaming products that may lead to significant profits [2][5]. - **2025 Gaming Landscape**: The year 2025 is anticipated to be a major year for game products, with significant releases from Perfect World, including **"Yihuan"**, and other major titles expected to drive industry growth [2][6]. - **"Yihuan" Highlights**: The new game **"Yihuan"** utilizes the Unreal Engine 5, featuring a differentiated combat system and a light-hearted, suspenseful storyline, with expectations to surpass the previous title **"Huan Tower"** [2][7]. - **Open World Mobile Games**: The future of open-world mobile games looks promising, with players increasingly willing to pay for high-quality games, suggesting a growing market segment [2][8][9]. - **Player Payment Habits**: Players have developed a willingness to pay for quality games, creating a favorable ecosystem for the growth of open-world games, with three significant titles expected to launch in the next two years [2][9]. Additional Important Information - **Organizational Changes**: Perfect World has undergone structural adjustments to become more market-oriented, reducing its workforce from over 5,700 to approximately 3,900 and selling non-core assets [3][10]. - **Revenue Projections for "Yihuan"**: The first-year revenue for "Yihuan" is projected to be between 5 billion to 9.1 billion RMB, with a corresponding profit elasticity of 900 million to 2.25 billion RMB [3][11]. - **Future Revenue and Profit Expectations**: Revenue forecasts for Perfect World from 2025 to 2027 are 6.7 billion, 10.8 billion, and 9.9 billion RMB, with net profits of 630 million, 1.71 billion, and 1.82 billion RMB respectively [3][12]. - **Risk Factors**: Investors should be aware of risks such as potential delays or quality issues with new game releases, changes in international trade policies affecting overseas business, and the possibility of data discrepancies due to reliance on assumptions and third-party data [3][13].

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 National Press and Publication Administration has approved a new batch of domestic online games, including the highly anticipated urban fantasy open-world game "Yihuan" from Perfect World, which has received multi-platform licenses for mobile, PC, and PS5, indicating an accelerated launch process [1] - "Yihuan" is positioned as an urban open-world RPG developed by Hotta Studio, known for the successful title "Huan Ta." The game features a unique storyline where players act as "anomaly hunters" in a fictional city, engaging in various quests and adventures [2][3] - The gameplay combines open-world exploration and action combat, with innovative elements such as vehicle customization and shop management, differentiating it from traditional titles in the genre [2][3] Group 2 - The game utilizes Unreal Engine 5 to deliver high-quality graphics and a vibrant art style, focusing on content density and interactive elements to enhance player experience [3] - Perfect World reported a significant increase in revenue for Q1, achieving 2.023 billion yuan, a 52.22% year-on-year growth, and a net profit of 302 million yuan, indicating a positive financial outlook that "Yihuan" could further enhance upon its release [3] - The competitive landscape for urban open-world games has evolved significantly since the success of "Genshin Impact," with many developers exploring diverse gameplay mechanics to avoid homogenization, positioning "Yihuan" in a relatively untapped market segment [4] Group 3 - "Yihuan" has garnered positive early feedback, with high ratings on platforms like TapTap and Bilibili, indicating strong player interest and potential for a successful launch [7] - The approval and testing of "Yihuan" signal a growing competition in the open-world genre, encouraging other developers to accelerate their game development processes [5][8] - The ongoing challenge for "Yihuan" and similar titles will be to balance monetization strategies with player experience post-launch, ensuring sustained user engagement [8]

Core Viewpoint - Perfect World has reported significant financial losses for the year 2024, with a total revenue of 5.57 billion yuan, a year-on-year decline of 28.5%, and a net loss of 1.29 billion yuan, indicating a challenging operational environment for the company [1][2][3]. Financial Performance Summary - The total revenue for 2024 was 5.57 billion yuan, down from 7.79 billion yuan in 2023, reflecting a decrease of 28.5% [2]. - The net profit attributable to shareholders was a loss of 1.29 billion yuan, compared to a profit of 491 million yuan in 2023, marking a decline of 361.98% [2]. - The net profit after deducting non-recurring items was a loss of 1.31 billion yuan, a significant drop from a profit of 210 million yuan in the previous year, representing a decline of 723.82% [2]. - The net cash flow from operating activities was 576 million yuan, down 24.32% from 762 million yuan in 2023 [2]. - The total assets at the end of 2024 were 11.37 billion yuan, a decrease of 21.55% from 14.49 billion yuan at the end of 2023 [2]. Game Segment Analysis - The gaming segment generated a revenue of 5.18 billion yuan in 2024, with a net loss of 725 million yuan attributed to several underperforming game projects [3][5]. - Key projects such as "Perfect New World," "Ling Cage," and others failed to meet revenue expectations, leading to a combined loss of approximately 390 million yuan [3]. - The company has initiated cost-cutting measures, including office space consolidation and personnel optimization, resulting in a 32% reduction in total employees by the end of 2024 [5][6]. Q1 2025 Performance - In Q1 2025, the company reported a revenue of 2.02 billion yuan, a year-on-year increase of 52.22%, and a net profit of 302 million yuan, reversing the losses from the previous year [7][8]. - The significant improvement in performance is largely attributed to the successful launch of "Zhu Xian World," which generated over 400 million yuan in revenue within the first 30 days of its release [9][12][17]. Future Product Pipeline - The company is focusing on upcoming titles such as "Yihuan," which is expected to leverage advanced technology and innovative gameplay to attract players [33][35]. - "Zhu Xian 2," a sequel to the popular "Zhu Xian" mobile game, is also in development, aiming to build on the established IP's success with new gameplay mechanics and enhanced graphics [39][41]. - The company is actively pursuing international expansion for its games, particularly with titles like "P5X," which has shown strong initial interest in various markets [27][50]. Esports and Event Management - Perfect World has developed a robust esports ecosystem, successfully hosting major events such as the 2024 CS:GO World Championship in Shanghai, which attracted significant viewership and engagement [30][32]. - The esports segment continues to contribute positively to the company's revenue, with plans for more high-profile events in 2025 to sustain growth [32].

Core Viewpoint - 2024 presents both opportunities and challenges for the gaming industry, with established companies like Perfect World needing to adapt to remain competitive [1] Financial Performance - Perfect World reported a total revenue of 5.57 billion yuan in 2024, a decline of 28.50% from 7.79 billion yuan in the previous year [3] - The company incurred a net loss of 1.29 billion yuan, compared to a profit of 491 million yuan in 2023 [3] - The gaming segment, which accounts for 93% of total revenue, generated 5.18 billion yuan, down 22.32% year-on-year [3] Dividend and Shareholder Returns - Despite the losses, Perfect World plans to distribute a cash dividend of 2.3 yuan per 10 shares, totaling 437 million yuan [3] - Since 2015, the company has distributed a cumulative total of 5.49 billion yuan in dividends, representing over 60% of cumulative net profit [3] Recent Developments - The launch of "Zhu Xian World" in December 2024 is seen as a potential turning point, contributing to a revenue of 2.02 billion yuan in Q1 2025, a 52.22% increase year-on-year [7] - The gaming business in Q1 2025 achieved a revenue of 1.42 billion yuan, up 10.37% from the previous year, attributed to the success of "Zhu Xian World" [7] Project Cancellations and Losses - Several projects were canceled due to poor expected returns, resulting in a combined loss of approximately 397 million yuan [4] - The underperformance of games like "One Punch Man: World" and "Kairi's Million Arthur: Ring" led to additional losses of about 343 million yuan [4] Future Prospects - Perfect World is focusing on new game releases, having recently received approval for two new titles, "Golden Flash Knight Group" and "Lost" [8] - The anticipated game "Yihuan" is expected to be a key player in the company's transformation, with a global pre-registration of 2.8 million [9][10] Esports Strategy - The successful hosting of the Shanghai Major in 2024 has positioned Perfect World favorably in the esports sector, contributing to stable revenue from titles like "DOTA2" and "CS:GO" [12] - The esports business model is still evolving, with event revenues making up only 8.75% of the total esports market revenue [13] Conclusion - 2025 is critical for Perfect World as it seeks to maintain its core MMO offerings while breaking into new genres [14] - The success of "Zhu Xian World" provides a boost, but sustained growth will require additional successful titles and innovative strategies [14]