Source: Brokers China Author: Hu Feijun, Sun Xiangfeng
Game stocks have been hit hard. How big is the impact?
On December 22, the gaming sector plummeted. According to Oriental Wealth Choice data, 26 A-share game companies had a cumulative net outflow of 3,976 billion yuan on the same day, while the net outflows from Kunlun World Wide, Shengtian Network, and Palm Fun Technology all exceeded 400 million yuan. At the same time, institutions sold game stocks in a big way, and many game stock sales lists on the Dragon Tiger List were occupied by exclusive institutional seats.
According to data from the post-market Dragon Tiger list, four institutions sold Shengtian Network for 186 million yuan, three institutions sold Pangqu Technology for 100 million yuan, three institutions sold Baotong Technology for 59.68 million yuan, and three institutions sold Youzu Network for 36.9 million yuan.
When the industry was hit hard, Tencent Holdings took another step. On December 22, Tencent announced on the Hong Kong Stock Exchange that it spent HK$1 billion to buy back 3.59 million shares on the same day. The repurchase effort increased markedly. The repurchase amount was 2.5 times that of the past.
Institutions sell gaming stocks
On December 22, the State Administration of Press and Publication issued a notice to publicly solicit comments on the “Measures for the Administration of Online Games (Draft for Comments)” (hereinafter referred to as the “Measures”). It is proposed to stipulate that when providing random sampling services, online game publishing and management units shall set reasonable sampling times and probabilities, and shall not induce online game users to consume excessively, etc. Affected by this news, the gaming sector of the Hong Kong stock market and A-share market was drastically adjusted in the afternoon.
By the close of the Hong Kong stock market, NetEase was down 24.6%, Xindong was down 19.01%, China Mobile Gaming was down 16.78%, Tencent was down 12.35%, and Bilibili was down 9.67%.
According to statistics from Dongfang Wealth Choice, a Chinese broker reporter, judging from the game industry in Shenwan's second-tier industry, the 26 A-share game companies included in the statistics all showed a net outflow of capital on December 22, with a cumulative outflow of 3,976 billion yuan on that day. Among them, Kunlun World Wide had a net outflow of 569 million yuan, Shengtian Network had a net outflow of 456 million yuan, and a net outflow of 404 million yuan from Palm Fun Technology, etc.
According to Dragon Tiger ranking data, institutions sold game stocks on a large scale on December 22.
According to data from Shengtian Online Dragon Tiger List, with the exception of Zhongtai Securities's Yantai Yingchun Street Securities sales department seats, all of the seats on the Dragon Tiger List that day were exclusive institutional seats and Shenzhen Stock Exchange. The four institutions sold a total of 186 million yuan, after deducting the net purchase of seats in the three institutions of 88,4019 million yuan. On the same day, the net sales of institutions on Shengtian Network was close to 100 million yuan.
Coincidentally, individual stocks such as Youzu Network have also experienced a similar situation. The exclusive seats and institutional seats of the Shenzhen Stock Connect became the main selling force.
Tencent steals to protect the disk
Following a sharp decline, industry leader Tencent Holdings made a decisive move.
On December 22, Tencent announced on the Hong Kong Stock Exchange that it spent HK$1 billion to repurchase 3.59 million shares on the same day. The minimum repurchase price was HK$263.8 per share, and the minimum repurchase price was HK$317 per share.
A Chinese broker reporter noticed that Tencent's repurchase operation is not uncommon, but in the face of an unexpected situation on December 22, the repurchase effort increased markedly. The repurchase amount was 2.5 times that of the past.
Taking this week as an example, on December 18, December 19, December 20, and December 21, the repurchases made by Tencent on that day were HK$401 million, HK$401 million, HK$403 million, and HK$402 million, respectively.
According to statistics, as of December 22, Tencent has repurchased 122 times this year, with a total repurchase amount of 46.417 billion yuan. Tencent's repurchase amount this year is unique among Hong Kong stocks, and has already surpassed last year's total, reaching a record high.
Earlier, Tencent's Third Quarterly Report revealed that within three months of the third quarter, Tencent repurchased 47.5192 million shares at a total cost of HK$15.3 billion. In addition to data from the first half of the year, Tencent bought back a total of HK$32.2 billion in the first three quarters. Going back to the past, Tencent spent a total of HK$2.6 billion on repurchases in 2021 and HK$33.8 billion in 2022.
In terms of performance, Tencent's performance in the third quarter of this year also exceeded expectations. The company achieved revenue of 154.63 billion yuan in the third quarter, an increase of 10% over the previous year; net profit (non-IFRS) of 44.92 billion yuan, an increase of 39% over the previous year. It has achieved a net profit growth rate superior to the revenue growth rate for many consecutive quarters.
According to the data, benefiting from the development of AI technology and the WeChat ecosystem, Tencent's advertising revenue increased 20% year over year to 25.72 billion yuan in the third quarter, fintech and corporate service revenue representing the digital economy grew steadily to 52.05 billion yuan, an increase of 16% year over year, and overseas game revenue increased 14% year over year to 13.3 billion yuan, accounting for nearly 30% of total game revenue.
A number of companies responded to the impact of policies
A number of listed companies have responded to the possible impact of the new regulations on companies.
In response to an interview with a brokerage firm in China, Tencent said that since the new regulations were issued in 2021, Tencent has been strictly implementing management requirements. Currently, the gaming time and consumption data for minors are at the lowest level in history. The draft for solicitation of comments on the new management measures did not fundamentally change the game's reasonable business model, operating pace, and other key elements.
Tencent said that the new version of the management regulations issued by the regulatory authorities this time clarifies the attitude of support for the industry, and in particular gives guidance on encouraging boutique original games. Tencent Gaming will continue to adhere to a quality strategy led by technological innovation and culture, and implement the high-quality development of the Chinese game industry with the support of the competent authorities.
In response to questions from investors on the Shenzhen Stock Exchange Interactive Platform, Tianyu Mathematics said that as of June 30, 2023, the company's data traffic industry revenue accounted for 95.87% of the company's revenue; the company's e-sports game industry accounted for 1.47% of revenue. The company's overall business focuses more on the direction of the data traffic industry, mainly focusing on the “aggregation, distribution, and application” of data elements. It continuously integrates cutting-edge technologies such as AIGC and virtual digital people to provide a full link of intelligent marketing services covering data analysis, user insight, traffic distribution, marketing optimization, creative efficiency, and brand operation for all walks of life. The “Measures” have little impact on the company's overall operations.
In response to questions from investors on an interactive platform, Fuchun Co., Ltd. stated that the “Measures”, if implemented, would have little impact on the company's existing game products. Overseas revenue accounted for 88.59% of the company's game revenue in 2022.
In response to the media, 37 Mutual Entertainment said that the company is still studying the impact the “Measures” will have on the company after implementation.
It is worth noting that shortly after the market, an insider from the Game Working Committee of the China Audio and Digital Association stated to the media in response to the “Measures,” “Since it is a draft for comments, it shows that all sectors can speak freely at this stage, so that it is practical and more complete.”
According to some public fund interpretations, the current regulation is still in the draft stage for solicitation of comments. At the same time, it is expected that the subsequent supervision will also focus on the draft solicitation of comments and discussions with the industry. There may be room for relaxation in the final level of implementation. However, if implemented, it is expected that game companies will be hit hard in the short term, which will have a real impact on profitability. For game developers and operators, if the new regulations are implemented, it may be necessary to adjust the game's business model to avoid adopting the prohibited marketing strategies described above, which may cause revenue to be affected in the short term.
edit/lambor