Core Insights - The 2025 Cologne International Game Show will take place in Cologne, Germany, from August 20 to 24, and is recognized as Europe's largest and most authoritative interactive entertainment exhibition, focusing on game hardware, software, technology, and related content [1][3] Group 1: Exhibition Overview - The event attracted 1,500 exhibitors from 72 countries and regions, marking an 11% increase from the previous year, setting a historical record for the Cologne International Game Show [4] - The exhibition area reached a record 233,000 square meters, featuring various segments including interactive gaming experiences, cosplay performances, independent games, card games, artist zones, and merchandise sales [9] Group 2: Chinese Participation - Over 50 Chinese exhibitors participated, a 32% increase from last year, showcasing new titles such as Tencent's "Honor of Kings World," "Delta Action," and "Crossfire: Rainbow" [13] - The presence of Chinese games in Europe has significantly increased, with Germany being the largest game market in Europe, housing approximately 37.5 million gamers [17] Group 3: Awards and Recognitions - The mobile game "Love and Deep Space" by Paper Games won the Best Mobile Game award, becoming the first female-oriented game to achieve this honor at the Cologne Game Show [19] - Other notable nominations included "Genshin Impact" and "Tomorrow's Ark" for Best Mobile Game, and "Shadow Blade Zero" for Best Sound Effects [24][26] Group 4: Major Game Releases and Innovations - Tencent's TiMi Studio Group showcased several titles, including "Delta Action," which announced cross-platform support for PC, mobile, and console [26] - The new game "Black Myth: Zhong Kui" was unexpectedly revealed, focusing on a new hero and gameplay, although its release is projected to be three years away [29] Group 5: Japanese Dominance - Japanese companies excelled at the event, with Capcom winning multiple awards for "Resident Evil 9: Requiem," including Best Visual Effects and Best PlayStation Game [42] - Nintendo also received accolades for innovative gameplay with "Donkey Kong: Banana Power" and topped the Switch 2 sales chart with "Mario Kart: World" [46]

Core Viewpoint - The Chinese gaming industry is transitioning from merely exporting products to a comprehensive globalization of the entire upstream and downstream industry chain [1] Policy Background - The policy "foreign-funded game companies developing games in Shanghai are treated as domestic games" aims to promote the agglomeration of the digital content industry in Shanghai [2] - This measure is part of a broader policy framework, including the "Fair Competition Review Regulations" passed by the State Council, which aims to ensure fair competition and expand high-level opening-up [3] Industry Development - Since 2014, Shanghai has initiated a pilot program for the territorial management of domestic online games, allowing local authorities to directly review and approve game licenses [4] - The "Accelerating the Comprehensive Pilot Work Plan for Expanding the Opening-up of the Service Industry" further promotes territorial management trials for domestic online games across multiple regions [6] Policy Impact - The new policy is expected to significantly reduce the time and uncertainty for foreign-funded game companies entering the Chinese market, aligning the approval process for foreign games with that of domestic games [8] - Historically, the approval process for imported games has been much longer than for domestic games, with delays often exceeding 12 months [8] Future Outlook - The policy may lead to more foreign-funded game companies being able to engage in various activities from development to operation in China, potentially creating new jobs and competitive products [11] - There are considerations regarding the expansion of this policy to other cities and the potential relaxation of operational requirements for foreign game companies [12] - The introduction of more favorable policies for the gaming industry is anticipated, particularly benefiting small and medium-sized enterprises [13] Industry Trends - The gaming industry is witnessing a shift as major companies relocate development teams to second-tier cities, indicating a proactive approach by local governments to attract gaming enterprises [15]

Core Viewpoint - The Shanghai Municipal Government has introduced measures to promote the high-quality development of the software and information services industry, particularly focusing on attracting foreign game companies to establish R&D teams in Shanghai by treating their products as domestic games for licensing purposes [1][3]. Group 1: Policy Measures - The measures aim to invigorate the operational vitality of software and information service enterprises, support AI-driven upgrades, cultivate new growth drivers, and reduce costs for companies in the sector [1]. - A notable aspect is the pilot policy allowing foreign game companies' products developed in Shanghai to be treated as domestic games, which is expected to enhance their chances of obtaining game licenses [1][6]. Group 2: Market Context - Shanghai is a preferred entry point for foreign game companies due to its status as a highland of openness in China, with many well-known firms like Ubisoft and Blizzard establishing their Chinese headquarters there [3]. - Despite having many foreign company headquarters, Shanghai has struggled to attract direct game development due to operational qualifications and licensing restrictions, limiting its industry scale [3][4]. Group 3: Competitive Landscape - The competition among cities for the game industry is intense, and Shanghai's ability to convert foreign company headquarters into substantial investments and a robust industry ecosystem is crucial [3][4]. - Local game companies in Shanghai, while established, lack the scale and experience compared to giants like Tencent and NetEase, making it essential for Shanghai to offer more attractive pathways for foreign collaboration [4]. Group 4: Licensing and Regulatory Challenges - The likelihood of foreign game companies obtaining domestic game licenses is significantly higher, with 1,306 domestic game licenses issued in 2024 compared to only 110 for imported games [6]. - However, obtaining a license still requires compliance with additional regulations, such as APP filing and possessing an ICP license, which presents further challenges for foreign companies [7]. Group 5: Future Implications - The pilot policy is seen as timely, as many foreign companies are looking to cut costs and may find it advantageous to establish R&D teams in Shanghai, leveraging local talent and reducing communication barriers [5]. - The actual impact of these measures on foreign game companies will depend on subsequent policies and their integration with existing regulatory frameworks [7].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings [4] Core Views - The company has exceeded revenue and profit expectations, with Q1 2025 revenue reaching 1800.2 billion yuan, a year-on-year increase of 12.9%, surpassing Bloomberg's consensus estimate of 1756.0 billion yuan. Non-IFRS net profit was 613.3 billion yuan, up 22.0% year-on-year, also exceeding expectations [2][14] - AI is making substantial contributions to the gaming and advertising industries, enhancing product differentiation and driving revenue growth [3][4] Summary by Sections Revenue and Profit Performance - Q1 2025 revenue was 1800.2 billion yuan, up 12.9% year-on-year, exceeding expectations [2][14] - Non-IFRS net profit for Q1 2025 was 613.3 billion yuan, reflecting a year-on-year increase of 22.0%, also above consensus estimates [2][14] Gaming Business - Online gaming revenue reached 595 billion yuan in Q1 2025, a 23.7% year-on-year increase, surpassing expectations [20] - Domestic gaming revenue was 429 billion yuan, up 24.3% year-on-year, while international gaming revenue was 166 billion yuan, up 22.1% year-on-year [21] Advertising Revenue - Advertising revenue for Q1 2025 was 319 billion yuan, a 20.4% year-on-year increase, exceeding expectations [24] - The growth in advertising revenue is attributed to increased user engagement, AI upgrades, and optimization of the WeChat ecosystem [24] Financial Technology and Enterprise Services - Financial technology and enterprise services revenue was 549 billion yuan in Q1 2025, a 5.0% year-on-year increase, slightly below expectations [28] - The growth in financial technology is driven by consumer loan services and wealth management services [28] Profitability Metrics - Overall gross margin for Q1 2025 was 56%, up 3 percentage points year-on-year, driven by high-margin revenue sources [33] - The gross margin for value-added services was 60%, reflecting growth in both domestic and international gaming revenue [33] Future Earnings Forecast - The report forecasts adjusted net profits of 2441 billion yuan, 2693 billion yuan, and 2984 billion yuan for 2025, 2026, and 2027 respectively, with corresponding PE ratios of 18, 16, and 14 times [4][43]

Core Insights - Tencent Games held the "SPARK2025" event, showcasing 46 game updates, including 24 new titles across various platforms [1][2] - The event marks Tencent's first major business display following the release of its 2024 financial report, which indicated total gaming revenue of 197.7 billion yuan [2][12] - Tencent aims to build a "production + distribution + investment" ecosystem to enhance its market share and secure future technologies amid a slowing industry growth [2][13] Game Production - Tencent's subsidiaries, including TiMi, Lightspeed, and others, presented 18 game updates, with several titles entering pre-registration or testing phases [5] - The flagship IP "Honor of Kings" announced multiple derivative projects, including an animated series and esports events, with the KPL finals expected to attract 50,000 viewers [5] - The game "Call of Duty Mobile" achieved over 1 billion global downloads in 2024, with plans for collaborations with other major IPs [6] Game Distribution - Tencent showcased 13 new games and 7 updates for popular titles, highlighting its diverse distribution strategy [8] - The domestic version of "Path of Exile 2" is set for a pioneer test this year, while "THE FINALS" will enter public testing in the second half of the year [8] - Tencent is focusing on cross-platform strategies, with several games enabling data interoperability between mobile and PC versions [9] Investment Strategy - Tencent's investment strategy emphasizes global expansion and exploration of innovative game genres, showcasing works from 8 invested studios [10] - A notable investment includes Tencent's 1.16 billion euro (approximately 9 billion yuan) stake in Ubisoft's new subsidiary, enhancing its presence in the AAA game sector [10] - The trend of "going global" is recognized as a common strategy among game developers, with companies like Century Huatong also achieving significant success in overseas markets [11] Future Outlook - Tencent's gaming business is expected to continue stable growth, although it faces challenges such as high dependency on core products and increasing global competition [12] - The company plans to increase R&D investments, particularly in AI technology, and enhance its global operational capabilities [13] - The "SPARK2025" event's showcased products and technological innovations reflect Tencent's strategic initiatives to optimize its gaming business structure and reshape industry competition [13]