Group 1 - The core viewpoint of the report is that CICC maintains an "outperform" rating for Kingsoft Corporation (03888), while lowering the target price by 18% to HKD 32, corresponding to a 28x P/E ratio for 2026 [1] - The company is currently trading at a 21x P/E ratio for 2026, indicating a potential upside of 35% [1] - Revenue for 2026 is revised down by 7.1% to RMB 10.14 billion, reflecting a more cautious outlook on short-term growth in the gaming business [1] - The net profit attributable to shareholders for 2026 is raised by 26.8% to RMB 1.42 billion, considering potential investment income recognition [1] - Revenue forecasts for 2027 are introduced at RMB 11.34 billion, with net profit attributable to shareholders projected at RMB 1.01 billion [1] Group 2 - Kingsoft Corporation reported Q4 2025 earnings with revenue of RMB 2.62 billion, a year-on-year decline of 6.2%, which met market expectations [2] - Operating profit for the quarter was RMB 514 million, down 53.5% year-on-year, but exceeded market expectations due to better-than-expected contributions from the office business [2] - The office business saw revenue growth of 16.6% year-on-year and 15.1% quarter-on-quarter, with all three core business segments showing growth [2] - The gaming business experienced a revenue decline of 32.8% year-on-year and 3.3% quarter-on-quarter, attributed to a high base from the previous year and a decrease in existing game revenue [2] - The quarterly operating profit margin reached 19.6%, down 20.0 percentage points year-on-year but up 8.2 percentage points quarter-on-quarter, primarily due to increased AI investments and marketing expenses [2] - The net profit margin attributable to shareholders was 37.2%, up 20.8 percentage points year-on-year and 28.4 percentage points quarter-on-quarter, mainly due to a one-time gain from the disposal of Kingsoft Cloud shares [2] - The game "Goose Goose Duck" launched in January 2026, attracting over 30 million new users and topping the iOS free chart for two consecutive months [2] - Management anticipates continued double-digit growth in office business revenue, while short-term pressures on the gaming business may persist [2]

Core Viewpoint - Kingsoft's Q4 2025 performance showed revenue in line with market expectations but operating profit exceeded expectations, primarily driven by strong contributions from the office business [1] Performance Review - Q4 2025 revenue was 2.62 billion yuan, a year-on-year decline of 6.2%, meeting market expectations [1] - Operating profit reached 514 million yuan, down 53.5% year-on-year, but exceeded market expectations due to better-than-expected profit contributions from the office business [1] Development Trends - The office business experienced accelerated growth, with Q4 revenue increasing by 16.6% year-on-year and 15.1% quarter-on-quarter, driven by growth across three core areas [1] - Kingsoft's focus on the office AI sector resulted in a significant increase in WPS AI monthly active users, reaching 80.13 million, a 307% year-on-year growth, with daily token usage exceeding 200 billion, a twelvefold increase [1] - The gaming business faced short-term pressure, with Q4 revenue declining by 32.8% year-on-year and 3.3% quarter-on-quarter, attributed to a high base from the previous year and a decline in existing game revenues [1] - The new game "Duck Duck Goose" is set to launch in January 2026, having already attracted over 30 million users and topping the iOS free chart for two consecutive months [1] - Management indicated plans to continue investing in flagship IPs, moderately scale back certain projects, and deepen AI applications in game development [1] - For Q1 2026, the office business is expected to maintain double-digit growth, while the gaming business may continue to face short-term challenges [1] Profitability Pressure - Q4 operating profit margin was 19.6%, down 20.0 percentage points year-on-year and up 8.2 percentage points quarter-on-quarter, primarily due to increased AI investments and marketing expenses [2] - The net profit margin attributable to shareholders was 37.2%, reflecting a year-on-year increase of 20.8 percentage points and a quarter-on-quarter increase of 28.4 percentage points, mainly due to a one-time gain from Kingsoft Cloud's asset disposal [2] Earnings Forecast and Valuation - Revenue forecast for 2026 was revised down by 7.1% to 10.14 billion yuan, reflecting a cautious outlook on the gaming business [2] - The net profit attributable to shareholders for 2026 was raised by 26.8% to 1.42 billion yuan, with 2027 revenue forecasted at 11.34 billion yuan and net profit at 1.01 billion yuan [2] - The target price was adjusted down by 18% to 32 HKD, based on a 2026 SOTP valuation, with an increased group discount rate from 50% to 55% due to uncertainties in the gaming business [2] - The company is currently trading at 21 times the 2026 price-to-earnings ratio, indicating a potential upside of 35% [2]

Investment Rating - Industry rating: Recommended [4] Core Insights & Investment Recommendations - Tencent has launched a tiered "Lobster" product matrix, promoting OpenClaw as a universal application. This series targets different user groups, creating a complete intelligent ecosystem that includes WorkBuddy for general users, QClaw for remote control via WeChat, and Tencent Cloud Lighthouse for enterprise users [2][20] - Apple has reduced its App Store commission rate in mainland China for the first time in six years, lowering the standard rate from 30% to 25% and the small business plan rate from 15% to 12%. This adjustment reflects a balance of interests between platforms and developers, particularly benefiting small developers and the mini-program ecosystem [3][21] - The rapid development of AI applications, combined with a recovery in entertainment consumption, presents investment opportunities in several areas: leading internet companies in Hong Kong, the gaming industry, and the film and cultural tourism sectors. Beneficiaries include Tencent, Alibaba, and several other companies [6][22] Market Overview - During the 11th week of 2026 (March 9-13), the Shanghai Composite Index fell by 0.7%, while the CSI 300 Index rose by 0.19% and the ChiNext Index increased by 2.51%. The SW Media Index dropped by 3.23%, ranking 26th among 31 industries [1][11] - In the sub-industries, advertising and marketing, film, and broadcasting were the top performers, with increases of 0.99% and 0.54%, while broadcasting saw a decline of 1.45% [1][11] Sub-Industry Data Film Industry - The top three films by box office for the week were "Fast Life 3" with 64.015 million yuan (35.20% market share), "Biao Ren: Wind Rises in the Desert" with 35.836 million yuan (19.70%), and "Silent Awakening" with 32.181 million yuan (17.70%) [23][24] Gaming Industry - The top three iOS games by revenue were "Honor of Kings," "Peacekeeper Elite," and "Delta Force," while the top three Android games were "Heart Town," "Diver Dave," and "Goose Duck Kill" [25][26] TV Series Industry - The top three TV series by broadcast index were "Love in the Pure Age" (80.9), "Zhu Yu" (80.2), and "My Mountain and Sea" (77.5) [27][28] Variety and Animation - The top variety show was "The Universe Sparkles, Please Pay Attention" with a broadcast index of 67.2, followed by "Hello Saturday 2026" and "Now Departing Season 3" [29][30] - The top three animated shows were "Beyond Time" (270.8), "Cang Yuan Tu" (237.4), and "Xian Ni" (237.1) [31]

Investment Rating - Industry rating: Recommended [4] Core Insights & Investment Recommendations - Tencent has launched a tiered "Lobster" product matrix, promoting OpenClaw as a universal application. This series targets different user groups, creating a complete intelligent ecosystem that includes WorkBuddy for general users, QClaw for remote control via WeChat, and Tencent Cloud Lighthouse for enterprise users [2][20] - Apple has reduced the commission rate for the App Store in mainland China from 30% to 25%, and for small business plans from 15% to 12%. This adjustment reflects a balance of interests between platforms and developers, particularly benefiting small developers and the mini-program ecosystem [3][21] - The rapid development of AI applications, combined with a recovery in entertainment consumption, presents investment opportunities in several areas: leading internet companies in Hong Kong, the gaming industry, and the film and cultural tourism sectors. Beneficiaries include Tencent, Alibaba, and several other companies [6][22] Market Overview - In the week of March 9-13, 2026, the Shanghai Composite Index fell by 0.7%, while the CSI 300 Index rose by 0.19% and the ChiNext Index increased by 2.51%. The SW Media Index dropped by 3.23%, ranking 26th among 31 industries [1][11] - The top three sub-industries were advertising and marketing, film, and broadcasting, with respective changes of +0.99%, +0.54%, and -1.45% [1][11] Sub-Industry Data Film Industry - The top three films by box office for the week were "Fast Life 3" with 64.015 million yuan (35.20% market share), "Biao Ren: Wind Rises in the Desert" with 35.836 million yuan (19.70%), and "Silent Awakening" with 32.181 million yuan (17.70%) [23][24] Gaming Industry - The top three iOS games by revenue were "Honor of Kings," "Peacekeeper Elite," and "Delta Force." The top three Android games by popularity were "Heart Town," "Diver Dave," and "Goose Duck Kill" [25][26] TV Series Industry - The top three TV series by broadcast index were "Pure Love in the Era of Innocence," "Zhu Yu," and "My Mountain and Sea," with indices of 80.9, 80.2, and 77.5 respectively [27][28] Variety and Animation - The top variety show was "The Universe Sparkles, Please Pay Attention," followed by "Hello Saturday 2026" and "Now Departing Season 3" [29][30] - The top three animated shows were "Beyond Time," "Cang Yuan Tu," and "Xian Ni," with viewership indices of 270.8, 237.4, and 237.1 respectively [31]

Group 1 - The gaming sector experienced a healthy performance during the Spring Festival, with major companies like Tencent having over 7 games in the iOS top 10 bestsellers, and "Honor of Kings" achieving significant social media engagement [1] - The gaming ETF (159869) has attracted substantial investment, accumulating 1.1 billion yuan since the market opened after the holiday, with a total scale reaching 128.81 billion yuan as of February 25 [1] - The potential of female gamers continues to be validated, with games like "Supernatural" achieving record daily active users (DAU) during the Spring Festival and "Goose Goose Duck" seeing a 46% month-over-month revenue increase [1] Group 2 - The gaming sector is undergoing multiple catalysts, including AI applications, content innovation, and changes in commercialization models, supported by favorable policies and product cycles [2] - The gaming ETF (159869) tracks the CSI Animation and Gaming Index, which leads the market in AI application content, providing a comprehensive coverage of the A-share animation and gaming industry [2] - The gaming sector is viewed as a promising investment opportunity, with upcoming potential hits like "Lock Kingdom" and "EVE" expected to drive further growth [1]

Core Insights - The entertainment industry is experiencing a shift, with cinema box office revenues dropping significantly during the Spring Festival, indicating a change in consumer spending habits towards better content [1] - The gaming industry, in contrast, showed resilience, with iOS revenue during the Spring Festival remaining relatively stable compared to the previous year [1] Group 1: Cinema Performance - The Spring Festival box office revenue this year was 5.752 billion yuan, with 120 million attendees, a decline of nearly 50% compared to 11.634 billion yuan and 240 million attendees in 2025 [1] - Consumers are becoming more selective, preferring to spend on quality content rather than simply attending movies [1] Group 2: Gaming Industry Performance - iOS revenue for games during the Spring Festival was approximately 440 million USD, showing a minimal decline of 0.03% compared to last year [1] - The top 30 games during the Spring Festival included 4 new titles, with 12 games experiencing revenue growth compared to the previous year [1] Group 3: Top Games and Their Performance - Tencent's games dominated the revenue rankings, with "Honor of Kings" and "Peacekeeper Elite" maintaining the top two positions, while "Delta Action" saw a remarkable revenue increase of 433.4% [3][4] - "Delta Action" has consistently remained in the top 10 of the iOS revenue charts since its launch in September 2024, indicating strong ongoing performance [7] - "Dark Zone Breakout" reported a 63% increase in revenue compared to last year's Spring Festival, highlighting its long-term operational success [9] Group 4: New Game Releases and Trends - New games like "Endless Winter" and "My Garden World" performed well during the Spring Festival, with "My Garden World" benefiting from a partnership with a celebrity [16] - The mini-game "Heroic Showdown" launched just before the Spring Festival and quickly entered the iOS top 200, showcasing the potential for new titles to gain traction during peak periods [14] - "Goose Duck" saw significant growth in downloads and revenue during the Spring Festival, aided by a popular streamer collaboration [20] Group 5: Market Dynamics and Competition - The Spring Festival period is characterized by intense competition, with many new games avoiding launches during this time to focus on long-term growth [24] - Despite the challenges, smaller developers are finding opportunities in the party game segment, as evidenced by the success of "Goose Duck" and "Egg Party" [24][22]

Summary of Conference Call Notes Industry Overview - The gaming industry has shown strong performance due to the Spring Festival holiday, with significant growth in daily active users (DAU) for major products. The overall valuation of games has returned to a range of 16-17x, indicating a high safety margin for investments and the potential for individual stock catalysts [1][2]. Key Companies and Insights - **Giant Network**: The performance during the Spring Festival was impressive, meeting expectations. Attention will be on whether the lower limit of performance improves post-holiday [2]. - **Kongzhong**: The AI social game ELYS gained traction before the Spring Festival, with a new game EVE scheduled for release on March 14, which is expected to catalyze growth in March and April [2]. - **Xindong**: The collaboration with My Little Pony in February exceeded expectations, indicating strong overseas performance [2]. - **Huatuo**: The company continues to see significant growth in overseas casual gaming, with a notable valuation advantage [2]. - **Perfect World**: The third testing phase for the game "异环" has raised expectations, with a formal launch anticipated in Q2 [2]. - **37 Interactive Entertainment**: New game catalysts are expected in March and April, with two overseas SLG games projected for release in the first half of the year [2]. - **Huya**: The game "鹅鸭杀" has maintained its position at the top of the iOS free charts, indicating strong user engagement [2]. - **Tianyu**: The game "龙迹X渣渣辉" is expected to see an increase in revenue in February [2]. Additional Insights - The overall sentiment in the gaming sector is positive, with a focus on individual stock performance and upcoming game releases as potential catalysts for growth. The emphasis on high DAU products suggests a trend towards games that can maintain user engagement over time [1][2].

Investment Rating - The industry investment rating is "Positive" (maintained) [7] Core Insights - The gaming sector has shown resilience in the current macroeconomic environment, with strong performance from both listed and non-listed companies during the Spring Festival period, confirming the ongoing logic of a significant product year in 2026 [7] - Notable games such as "Goose Goose Duck" have dominated the App Store charts, while companies like Century Huatong and Perfect World have seen impressive pre-registration numbers and revenue growth for their upcoming titles [2][3][5] - The overall industry sentiment is improving, with non-listed companies also achieving remarkable results, as seen with "Blue Archive" and "Arknights" celebrating significant anniversaries and experiencing substantial revenue increases [4] Summary by Sections Company Performance - Tencent's games have shown comprehensive growth, with "Goose Goose Duck" topping charts and "Dark Zone Breakthrough" reaching over 230 million registered users [7] - Century Huatong's "Yihuan" has surpassed 25 million pre-registrations, outperforming titles like "Genshin Impact" in pre-launch interest [3] - Giant Network's "Supernatural Action Group" has achieved a daily active user (DAU) count exceeding 10 million, benefiting from the holiday season [3] Revenue Growth - Tencent's "Honor of Kings" saw a 105% month-on-month revenue increase to $220 million, while "Peacekeeper Elite" surpassed $110 million in revenue during January [7] - Non-listed games like "Blue Archive" and "Arknights" reported global revenue increases of 220% and 122%, respectively, in January [4] Investment Recommendations - The report recommends focusing on Perfect World due to the strong pre-registration numbers for "Yihuan" and suggests monitoring companies like Tencent, Huya, Century Huatong, Giant Network, and Kingsoft for their product lines [5]

Core Insights - The report indicates that in January 2026, China's domestic game market achieved actual sales revenue of 32.468 billion yuan, with a month-on-month growth of 2.99% and a year-on-year growth of 4.47%, signaling new trends in the gaming industry for the year [1] Client Game Market Performance - In January, the client game market in China generated actual sales revenue of 8.236 billion yuan, reflecting a month-on-month increase of 7.77% and a year-on-year surge of 23.46%, significantly outperforming the overall market growth of 4.47% [2] - The growth is attributed to new product launches, such as "Arknights: End of the World" and "Crossfire: Future," which contributed over 500 million yuan in revenue each within the month [2] - The data suggests a shift in the client market from being a supplementary channel to becoming a primary battleground, as high-configuration games provide experiences that mobile platforms cannot replicate [2] Mobile Game Market Trends - The mobile game market in January recorded actual sales revenue of 22.621 billion yuan, with a month-on-month increase of 1.8% but a year-on-year decline of 1.52% [3] - The month-on-month growth was driven by new and existing products, with "Honor of Kings" returning to the top of the global mobile revenue chart [3] - The year-on-year decline is attributed to the high base from January 2025, which coincided with the Spring Festival, while deeper structural issues in the mobile market are highlighted by the rise of social party games like "Duck Duck Goose" [3] Overseas Market Performance - In January, China's self-developed games achieved actual sales revenue of 2.077 billion USD in overseas markets, showing a slight month-on-month decrease of 2.50% but a year-on-year increase of 24.05% [4] - The growth is driven by mature products like "Genshin Impact" and new releases such as "Arknights: End of the World," which generated over 20 million USD in just three days [4] - The report emphasizes a shift from a "single product" approach to a "matrix strategy," allowing companies to leverage the same IP across multiple markets and platforms simultaneously [4] Industry Trends - The report reflects three emerging trends in the gaming industry: 1. Multi-platform integration is becoming the new norm, as evidenced by the significant PC revenue share of "Arknights: End of the World," indicating a blurring of lines between mobile and PC gaming [5] 2. In a competitive landscape, game companies are focusing on operational precision, as seen with the success of "Honor of Kings" and "Peacekeeper Elite," which rely on stable updates and engaging content to retain players [5] 3. The overseas market remains promising, with a 24% year-on-year growth indicating that there is still room for expansion, necessitating a global perspective in game design from the outset [6]

Group 1 - The core viewpoint of the report indicates that the Chinese gaming market is showing steady growth, with actual sales revenue reaching 32.468 billion yuan in January 2026, reflecting a month-on-month increase of 2.99% and a year-on-year increase of 4.47% [1][2] - The client game market generated actual sales revenue of 8.236 billion yuan, with a month-on-month growth of 7.77% and a year-on-year growth of 23.46%, driven primarily by the launch of new products [5][10] - The mobile game market achieved actual sales revenue of 22.621 billion yuan, with a month-on-month increase of 1.8% but a year-on-year decrease of 1.52%, indicating a mixed performance influenced by new releases and high competition [10][9] Group 2 - The overseas market for self-developed games saw actual sales revenue of 2.077 billion USD, with a month-on-month decrease of 2.5% but a year-on-year increase of 24.05%, highlighting the dual engine of mature products and new games driving growth [27][30] - The top-performing mobile games in January 2026 included "Peacekeeper Elite" and "Dungeon & Fighter: Origin," which saw significant revenue increases due to new content and updates [14][16] - The new game "Arknights: Endfield" achieved over 500 million yuan in its first month, showcasing the effectiveness of innovative gameplay and strong IP influence in attracting players [24][26]