Investment Rating - The report maintains a "Buy" rating for the company [5] Core Views - The company is expected to benefit from a rich reserve of game content, with multiple new games anticipated to contribute to revenue growth in the second half of the year. The advertising sector is also projected to see growth due to increased user engagement and improved conversion rates [3][10] - Revenue forecasts for 2025 to 2027 are adjusted to 30.2 billion, 32.2 billion, and 33.9 billion CNY respectively, reflecting a downward revision due to underperformance in certain game titles [3][10] Financial Summary - The company’s revenue for 2023 is projected at 22.5 billion CNY, with a year-on-year growth of 2.87%. This is expected to rise to 30.2 billion CNY in 2025, representing a growth of 12.47% [4][11] - The operating profit is forecasted to turn positive in 2025, reaching 797 million CNY, with a significant increase in subsequent years [4][11] - The net profit attributable to the parent company is expected to be 602 million CNY in 2025, with a notable recovery from a loss of 4.8 billion CNY in 2023 [4][11] - The gross margin is projected to improve from 24.16% in 2023 to 37.07% in 2025, indicating better cost management and revenue generation efficiency [4][11] Revenue Breakdown - Game revenue is expected to reach 16.3 billion CNY in Q2 2025, showing a year-on-year increase of 62%. The advertising revenue is projected at 24 billion CNY, with a year-on-year growth of 17.7% [10][11] - Live streaming and value-added services (VAS) revenue is anticipated to be 28 billion CNY in Q2 2025, reflecting a 10% increase year-on-year [10][11] Valuation Metrics - The target price for the company's stock is set at 214.30 HKD, based on a price-to-sales (P/S) ratio of 2.7x for comparable companies [3][12] - The company’s price-to-earnings (P/E) ratio is projected to be 118 in 2025, indicating a high valuation relative to earnings [4][12]

Core Insights - The gaming companies in Shanghai appear to be recovering, signaling a potential new phase for the industry [1][26] Group 1: Company Performance - Eagle's new game "Pom Pom" has achieved significant success, ranking Top 3 in China and Top 10 globally on Steam with an 88% approval rating [1][2][3] - Paper Games has seen a remarkable turnaround, with its flagship store topping the sales chart on Tmall during the "618" shopping festival [5][6] - The game "Love and Deep Space" has shown strong performance, with projected revenue exceeding 6 billion yuan across all platforms in 2024 [6][7] - Heartbeat Games has reported a nearly 70% year-on-year revenue increase, reaching 3.3 billion yuan in 2024, driven by successful titles [10][12] Group 2: Industry Trends - The gaming industry in Shanghai is experiencing a collective improvement, which may indicate the beginning of a recovery cycle [26] - Despite the positive trends, many companies remain cautious regarding project launches and hiring, with a significant oversupply of talent in the job market [24][25] - The past two years saw a wave of layoffs and project cancellations across the industry, but the current signs of recovery suggest a potential shift in the market dynamics [23][26]