Summary of China Online Gaming Industry Journal (Dec 2025 Edition) Industry Overview - The report focuses on the **China Online Gaming Industry**, highlighting key insights from various companies and market trends in the sector [1][2]. Key Companies Mentioned - **Century Huatong** - **37 Interactive Entertainment** - **Perfect World** - **Kingnet** - **G-Bits** - **Giant Network** Core Insights and Arguments 1. **Market Performance**: The A-share gaming sector experienced a rally in early January, indicating a positive sentiment towards the industry. The focus is on the monetization potential of the upcoming game cycle and performance during the Chinese New Year promotion [1]. 2. **Earnings Visibility**: There is an emphasis on strengthening shareholder returns to boost market confidence in earnings visibility as the sector approaches 2026 [1]. 3. **Constructive Outlook**: The report maintains a positive outlook on the China online gaming sector, citing quality earnings growth, accelerating overseas expansion, and increased exposure to AI gaming [1]. 4. **Company Rankings**: The new A-share gaming pecking order is established as follows: Century Huatong > Kingnet > Giant Network > 37 > G-Bits > Perfect World [1]. Financial Highlights - **Global Mobile Game Revenues**: According to AppMagic, global mobile game grossing remained stable with a **0.5% year-over-year increase**, while downloads rose by **4.6% year-over-year**. Notably, 12 of the top 30 most profitable mobile games globally were developed by Chinese studios [2]. - **Top Performers**: Among the top 30 mobile games, **Whiteout Survival** from Century Games was highlighted as the fastest-growing mobile game globally, achieving **50% year-over-year grossing growth** [2]. Company-Specific Updates 1. **Century Huatong**: Released the domestic version of **High Seas Hero** on WeChat mini game and is testing multiple new strategy games in domestic and overseas markets [3]. 2. **37 Interactive Entertainment**: The mini game **Survival in 33 Days** achieved significant traction, reaching the 2 position in WeChat mini game grossing in December 2025 [4]. 3. **Perfect World**: Announced the third round of closed beta testing for **Neverness to Everness**, available on multiple platforms [5]. 4. **Kingnet**: Launched a new MMORPG titled **Divine** in South Korea, featuring unique gameplay mechanics [6]. Additional Insights - The report suggests that the recent performance of 37 Interactive Entertainment supports its potential for re-rating as a sector laggard following the removal of regulatory overhang [4]. - The focus on AI gaming exposure indicates a trend towards integrating advanced technologies in game development, which could enhance user engagement and monetization strategies [1]. Conclusion The China Online Gaming Industry is poised for growth, driven by strong earnings potential, innovative game releases, and a favorable market environment as it heads into 2026. The emphasis on shareholder returns and AI integration reflects a strategic approach to enhance competitiveness in the global gaming landscape [1][2].

Investment Ratings - The report maintains an "Overweight" (OW) rating on 37IE, an "Equal Weight" (EW) rating on G-bits, and an "Equal Weight" (EW) rating on Perfect World [1][3][4]. Core Insights - China's game industry has experienced high-teens percentage revenue growth year-to-date, surpassing the previous year's growth of 8%, indicating improved demand despite macroeconomic challenges [2]. - The report highlights successful new game releases and the stabilization of evergreen games as key factors driving the rebound in performance for 37IE, G-bits, and Perfect World [2][10]. Summary by Company 37IE - The price target is set at Rmb23.00, reflecting a 15x 2026 estimated P/E ratio, with an attractive 6% dividend yield [3][17]. - Anticipated revenue growth is supported by new titles such as "Soul Land," expected to generate Rmb300-500 million in its first month and Rmb1.5-2 billion overall in 2025 [16][17]. - The company has a robust pipeline with over 40 self-developed and licensed games, indicating sustained growth momentum [16][34]. Perfect World - The price target is raised to Rmb16.30, based on an 18x 2026 estimated P/E ratio, reflecting strong growth expectations driven by the anticipated title "Neverness to Everness" [4][29]. - The company is expected to see an 18% year-over-year revenue growth in 2025, with significant contributions from new titles [28][32]. - The release of "Zhuxian 2" on August 7 is also expected to be a key growth driver [4][31]. G-bits - The price target is increased to Rmb330, derived from a 15x 2026 estimated P/E ratio, reflecting a busy 2025 but a slower 2026 due to a weaker pipeline [5][22]. - Revenue growth is projected at 22% and 29% quarter-over-quarter and year-over-year in 2Q25, driven by new titles [20][22]. - The company is expected to experience alternating busy and slow product years, with 2025 being particularly strong [18][22].

Investment Rating - The investment rating for Century Huatong is "Buy" with a target price of Rmb10.0 based on an 18x 2025E PE, reflecting a 15% premium to the current A-share gaming average of 16x [16] - XD is rated "Hold" with a target price of HK$44, based on a 19x 26E EPS, set at a 20% premium to China's online gaming peers [18] Core Insights - The China Online Gaming Industry is expected to see increased topline visibility and quality earnings growth due to more game companies preparing to launch key titles in 2Q/3Q25, which may lead to re-rating opportunities [1] - Century Huatong is highlighted as a preferred investment choice due to its successful operations of Whiteout Survival and significant revenue size among A-share gaming peers [16] - XD is considered an attractive beta play in a risk-on environment, leveraging its self-development capabilities and unique gaming community platform [1][18] Company-Specific Summaries Century Huatong - Century Huatong's overseas grossing from Kingshot doubled month-over-month in May, generating over US$75 million, indicating strong growth potential [2] - The company is expected to benefit from the performance of its titles, particularly Kingshot and Whiteout Survival, which are projected to contribute to greater topline upside in 2025E [2] 37 Interactive - 37 Interactive is set to launch Soul Land MMO on July 11, with pre-registration exceeding 8 million, indicating strong initial interest [3] Kingnet - Kingnet plans to launch Nobunaga's Ambition overseas on June 18, developed in collaboration with Tanda Games and Koei Tecmo [4] Perfect World - Perfect World is initiating the second beta for Neverness to Everness, with recruitment ongoing until June 17, suggesting potential for further game optimization and upgrades [5] XD - XD launched Etheria: Restart on June 5, achieving over 1 million downloads within two days and ranking in the top 3 for iOS downloads in several countries [6] - The title is expected to generate significant revenue, with estimates suggesting first-month grossing could reach Rmb100 million, with 50% from the US market [6] G-Bits - G-Bits launched Scepter & Sword on May 29, achieving a strong initial ranking in iOS downloads, although its long-term performance remains uncertain due to aging core game titles [8]