According to a research report released by Zheshang Securities, there were fewer new products launched in the gaming sector in Q1 24, and the overall market sentiment was somewhat tepid. However, according to the data, the market scale has not decreased but increased. According to the data from the gaming committee, the market size of the gaming sector in the first three months of 2024 increased year-on-year, and only decreased slightly by 1.93% in April. The market size for the first four months was 95.1 billion yuan, a year-on-year increase of 5.63%, higher than the GDP growth rate of 5.3% in Q1 24. The gaming sector is currently a good left-side investment opportunity. At the same time, considering the important catalyst in June, we should focus on the gaming sector.

Looking back at the history of the gaming sector, the main low valuation points were during the suspension of gaming approvals in 2018 and during the period of the tightening of regulations related to underage protection in 2021. At that time, the expected P/E ratios of the weighted stocks of the gaming index were around 10 times. At the current point in time, the estimated P/E ratios of the weighted stocks of the gaming index are approaching 10 times. According to Wind data as of May 31, the 24 EP/E ratios of the top five weighted stocks in the Gaming (CITIC) Index were 11/12/13/14/17 times.

Looking ahead to June, the catalysts for new technologies and products are expected to be reflected in the summer season. In terms of new technologies, there are two important catalysts in June 2024. One is the COMPUTEX held in Taiwan, where chip giants such as Nvidia, Intel, and Qualcomm are expected to announce progress related to their AIPC; the other is Apple's WWDC in mid-June, where iOS 18 may announce the introduction of new AI features, which could be used by devices such as Siri, iPhone 15 Pro, and M1 chips that can handle large models. The above two important catalysts are expected to lead investment opportunities.

In terms of new products, the gaming sector, both listed and unlisted companies, entered a peak of product launches starting in May, including Tencent's "Need for Speed: Assembly", "Delta Force"; Netease's "16 Sounds of Swallows"; Bilibili's "Three Kingdoms: The World Conquered"; MiHoYo's "Genshin Impact Zero"; Game Science's "The Black Myth: Wu Kong", and more. In addition, with the earlier launches of Perfect World's "Goddess of the Mystery: Nightshade" and Tencent's "Dungeon and Warriors", the market size of the gaming sector in Q2-Q3 24 will continue to grow year-on-year.

As for the symbols, we recommend keeping an eye on June 13 when "Three Kingdoms: The World Conquered" will be launched, as well as Bilibili (09626), which has recently seen a recovery in advertising business, and Kingnet Network (300315.SZ), which has a deep layout in AI platforms and tools, and whose product line will see major improvements this year. We also focus on Kingnet Network (002517.SZ)/37 interactive entertainment network technology group (002555.SZ)/Giant Network Group (002558.SZ)/Hubei Century Network Technology Inc. (300494.SZ) etc., which have key new products coming online during the summer season.

Risk warning: AI technology development is slower than expected, related game launch progress and quality are lower than expected, and policy tightening such as approval for new games and overseas expansion.