Group 1 - The company reported a 10.72% year-on-year increase in net profit for the first half of 2025, reaching 1.4 billion yuan, despite an 8.08% decline in revenue to 8.486 billion yuan [1] - In Q2 2025, the company achieved a net profit of 851 million yuan, marking a significant 31.24% year-on-year increase and a 54.97% quarter-on-quarter increase, while revenue was 4.243 billion yuan, down 5.33% year-on-year [1] - The company plans to distribute a cash dividend of 2.10 yuan per 10 shares, totaling 465 million yuan, which represents 33.18% of the net profit for H1 2025 [1] Group 2 - The company is leveraging multi-IP collaborations to extend the lifecycle of existing games, with titles like "Seeking the Great Thousand" and "Time Grocery Store" showing effective engagement strategies [2] - New game releases such as "Time Explosion" and "Heroes Have No Flash" have quickly climbed to the top of the iOS and WeChat mini-game charts, indicating strong market reception [2] - The company has a diverse product line, with ongoing development in various genres including MMORPG, SLG, and card games, and has secured rights for multiple popular IP adaptations [3] Group 3 - The company is expected to see revenue growth from 17.589 billion yuan in 2025 to 18.765 billion yuan in 2027, with net profit projected to increase from 2.917 billion yuan to 3.208 billion yuan during the same period [3] - The company's current valuation does not fully reflect its earnings recovery potential and long-term growth prospects, suggesting room for revaluation [3] - The company is rated as a "buy" based on its performance and growth outlook [3]

Group 1: Overview of China's Gaming Industry Growth - The Chinese gaming industry is experiencing a new wave of growth in overseas markets, with actual sales revenue from self-developed games reaching $9.501 billion in the first half of 2025, a year-on-year increase of over 11% [1] - Traditional markets such as North America, Japan, South Korea, and Western Europe remain key revenue contributors, but competition is intensifying, prompting Chinese companies to explore underdeveloped emerging markets [1] - Emerging markets in the Middle East, Latin America, and Southeast Asia are rising, presenting new growth opportunities for manufacturers [1] Group 2: Vietnam's Gaming Market - Vietnam has emerged as a significant player in the global gaming scene, with mobile game downloads reaching the highest globally in 2024, surpassing China [5] - Chinese games dominate the Vietnamese market, with 81% of approved games being from China, and titles like "Sword of Legends Online" have historically held a significant market share [7] - The success of Chinese games in Vietnam is attributed to cultural proximity, effective localization strategies, and integration with local payment platforms [9] Group 3: Challenges in the Vietnamese Market - Despite the potential, challenges such as strict approval processes and market size versus commercial return discrepancies exist, requiring companies to adjust expectations [9] - The Vietnamese gaming market is projected to reach $1.5 to $2 billion by 2025, with an annual growth rate of 15% to 25% [9] Group 4: Middle East Gaming Market - The Middle East is becoming a new blue ocean for the gaming industry, driven by a large population, strong consumer spending, and government support [12] - Saudi Arabia's government has elevated the gaming industry as a national strategy, planning to invest $38 billion in gaming and esports [14] - The market is characterized by high consumer spending, with Saudi users' average revenue per user (ARPU) being twice that of the U.S. and five times that of China [14] Group 5: Russia's Gaming Market - Russia's mobile game downloads reached 1.18 billion in the first half of 2024, making it the fifth largest globally, supported by a smartphone penetration rate of 83% [17] - The local digital ecosystem has shown resilience despite international sanctions, with in-app purchase revenue expected to reach $247 million in 2024, growing 12% year-on-year [17] - The exit of Western companies has created a "window of opportunity" for Chinese developers to fill the gap in the market [20] Group 6: Latin America's Gaming Market - Latin America is a growing market with approximately 150 million gamers and a market size of around $3.8 billion, with Brazil being the largest market [21] - The effectiveness of marketing strategies has shifted towards leveraging KOLs (Key Opinion Leaders) for brand promotion, especially in gaming [23] - The market is in a recovery phase, with Chinese companies increasingly establishing local teams for customized operations [24] Group 7: Future Outlook - The Chinese gaming industry is entering a new phase focused on strategic depth and localization, moving away from a reliance on traffic and short-term gains [25] - The next decade will see competition driven by the ability to transition from "game developers" to "localization partners," enabling sustainable global development [26]

Investment Rating - The report maintains a "Buy" rating for the company [5][7]. Core Insights - The company achieved a revenue of 8.486 billion yuan in H1 2025, a year-on-year decline of 8.08%, while the net profit attributable to shareholders reached 1.4 billion yuan, an increase of 10.72% [1]. - New game releases such as "Time Explosion" and "Heroes No Flash" have performed exceptionally well, with "Time Explosion" reaching the top of the iOS free chart and later ranking fourth in the WeChat mini-game sales chart [2]. - The company continues to strengthen its long-term operational capabilities for existing games and has seen stable performance from overseas products, with overseas revenue at 2.724 billion yuan, a year-on-year decline of 6.01% but an increase in its share of total revenue [3]. - The company has upgraded its AI model capabilities, with over 80% of 2D art assets generated using AI technology, and more than 70% of game advertisement videos produced with AI involvement [4]. Financial Overview - The company is projected to achieve revenues of 18.418 billion yuan, 19.523 billion yuan, and 20.889 billion yuan for the years 2025, 2026, and 2027, respectively, with year-on-year growth rates of 5.6%, 6.0%, and 7.0% [5][6]. - The net profit attributable to shareholders is expected to be 2.808 billion yuan, 3.030 billion yuan, and 3.288 billion yuan for the same years, with growth rates of 5.1%, 7.9%, and 8.5% [5][6]. - The company's P/E ratios are projected to be 14, 13, and 12 for the years 2025, 2026, and 2027, respectively [5].

Core Viewpoint - The recent removal of 37 Interactive Entertainment from major indices like the CSI 300 and the Shenzhen 100 highlights the company's struggles with market performance, including stagnant revenue growth and increasing financial risks [2][3][34]. Group 1: Company Performance - 37 Interactive Entertainment has faced significant challenges, including stagnant revenue between 16.5 billion and 17 billion yuan from 2021 to 2023, with a slight increase to 17.44 billion yuan in 2024, representing a 5.4% year-on-year growth [5][10]. - The company's net profit has remained in the range of 2.5 billion to 3 billion yuan, with a reported net profit of 2.673 billion yuan in 2024, showing only a 0.54% increase [5][10]. - In Q1 2025, the company reported a revenue decline of 10.67% to 4.243 billion yuan and a net profit drop of 10.87% to 549 million yuan [10][13]. Group 2: Financial Health - The company's cash flow from operating activities decreased by 4.74% in 2024, leading to a net cash flow of approximately 2.998 billion yuan [9]. - Short-term borrowings surged by 71% to 2.654 billion yuan by the end of 2024, raising concerns about liquidity despite having over 10 billion yuan in cash and cash equivalents [8][20]. - The company has seen a significant increase in restricted assets, totaling 2.905 billion yuan, primarily due to pledged deposits [21]. Group 3: Management and Governance - High executive compensation has raised concerns, with several executives receiving substantial salary increases, while employee compensation has decreased [14][18]. - The company has been under investigation by the China Securities Regulatory Commission for alleged information disclosure violations, which has affected its financial reporting [29][32]. Group 4: Market Position and Strategy - 37 Interactive Entertainment has struggled to produce hit games, leading to a "hit drought" in 2024, despite having over 20 games in development [23][34]. - The company's R&D expenditures have decreased significantly, from 9.05 billion yuan in 2022 to 6.46 billion yuan in 2024, which may impact its competitive edge [24]. - The company is attempting to leverage AI for growth, but its current applications have not led to significant innovation breakthroughs [33][34].

Investment Rating - The report maintains a "Buy" rating for the company, expecting the stock price to outperform the industry index by more than 15% in the next six months [4]. Core Views - The company experienced pressure on its performance in Q1 2025, with a year-on-year revenue decline of 10.67% to 4.243 billion yuan, and a net profit decrease of 10.87% to 549 million yuan. This was attributed to the early promotional phase of several new games and the natural decline in revenue from mature products [2][3]. - The company has a rich product pipeline, with new games like "Time Grocery Store" and "Heroes No Flash" showing strong market performance, indicating potential for future growth [3]. - The company is expected to achieve revenues of 19.033 billion yuan, 20.533 billion yuan, and 21.769 billion yuan for the years 2025, 2026, and 2027 respectively, with corresponding net profits of 2.839 billion yuan, 3.156 billion yuan, and 3.482 billion yuan [3][4]. Financial Summary - For 2023, the company reported a revenue of 16.547 billion yuan, with a projected growth rate of 0.9% year-on-year. The net profit for the same year was 2.659 billion yuan, reflecting a year-on-year decline of 10% [1][2]. - The company's return on equity (ROE) is projected to be 20.6% in 2023, gradually decreasing to 17.4% by 2027 [1][3]. - The price-to-earnings (P/E) ratio is expected to decrease from 13.0 in 2023 to 9.9 by 2027, indicating a potentially more attractive valuation over time [1][3].

Core Viewpoint - Sanqi Interactive Entertainment has faced continuous pressure on its performance, with its revenue and market value lagging behind ST Huatuo in 2024, losing its position as the leader in the A-share gaming industry [1][4]. Group 1: Financial Performance - In Q1 2025, Sanqi Interactive reported a revenue of 42.43 billion yuan and a net profit attributable to shareholders of 5.49 billion yuan, representing a year-on-year decline of 10.67% and 10.87% respectively [4][11]. - For the full year 2024, the company achieved a revenue of 174.41 billion yuan, marking a new high but with a significant slowdown in growth; net profit remained flat at 26.73 billion yuan [4][11]. - The company's overseas revenue in 2024 was 57.22 billion yuan, a decrease of 1.47% year-on-year, reducing its share of total revenue from 35.1% to 32.81% [4]. Group 2: Market Position and Competition - ST Huatuo's revenue surged by 70% in 2024, surpassing 200 billion yuan for the first time, thus taking the lead in the industry [4]. - Sanqi Interactive's gaming business shows a clear trend of "heavy on user acquisition, light on R&D," with over 90% of its sales expenses attributed to internet traffic costs, amounting to 91.51 billion yuan, which is 14 times its R&D expenses [9]. Group 3: Regulatory Issues - Sanqi Interactive is under investigation by the China Securities Regulatory Commission (CSRC) for suspected violations of information disclosure laws, with no conclusive results as of now [10][11]. - The company's stock price has plummeted from a high of 33.94 yuan in June 2023 to below 12 yuan, reflecting a loss of nearly half its market value in less than two years [11]. Group 4: R&D and Employee Trends - The number of R&D personnel at Sanqi Interactive has decreased from 1,654 in 2022 to 1,318 in 2024, a decline of 10.40%, while the proportion of R&D staff in total employees fell from 46.57% to 40.57% [9]. - In contrast, ST Huatuo maintained a stable number of R&D personnel at around 2,200, with an increasing proportion of R&D staff [9].

Investment Rating - The investment rating for the company is "Buy" and is maintained [6]. Core Views - In Q1 2025, the company achieved revenue of 4.243 billion yuan, a year-on-year decrease of 10.67% but a quarter-on-quarter increase of 3.45%. The net profit attributable to the parent company was 549 million yuan, down 10.87% year-on-year and down 29.19% quarter-on-quarter. The net profit excluding non-recurring items was 536 million yuan, a year-on-year decrease of 12.90% and a quarter-on-quarter decrease of 24.90% [2][4]. - The performance of several new games, such as "Time Explosion" and "Heroes Don't Flash," has been strong, driving a quarter-on-quarter revenue increase. However, the revenue declined year-on-year due to the natural decline in existing game revenue and a high base effect. Increased expenses from new game launches have led to a decline in performance, and future attention will be on the recovery of initial investments [2][4]. - The company has a rich pipeline of upcoming products, and attention should be paid to the testing and launch progress of key new games [2][4]. Summary by Sections Financial Performance - In Q1 2025, the company reported revenue of 4.243 billion yuan, a year-on-year decline of 10.67% and a quarter-on-quarter increase of 3.45%. The net profit attributable to the parent company was 549 million yuan, down 10.87% year-on-year and down 29.19% quarter-on-quarter. The net profit excluding non-recurring items was 536 million yuan, a year-on-year decrease of 12.90% and a quarter-on-quarter decrease of 24.90% [2][4]. New Game Performance - Several new games launched in early 2025, including "Time Explosion" and "Heroes Don't Flash," have shown strong performance, with "Time Explosion" ranking in the top 4 of the WeChat mini-game sales list and "Heroes Don't Flash" entering the top 5 of the iOS sales list [2][4]. - The increase in sales expenses due to new game promotions has led to a sales expense ratio of 57% in Q1 2025, resulting in temporary losses for the issuing entities of these new games. As the initial investments for these new games are recovered, profit margins are expected to improve [2][4]. Product Pipeline - The company has a diverse pipeline of new games, including MMORPG, SLG, card games, and simulation management genres, which may continue to contribute to revenue growth. Notable upcoming titles include "Douluo Dalu: Hunting Soul World" and "Zhui Xu," which have already received approval for release [2][4]. - The company expects net profits attributable to the parent company to be 2.84 billion yuan and 3.09 billion yuan for 2025 and 2026, respectively, corresponding to PE ratios of 11.8 and 10.9 times [2][4].