Informed by the Wise Finance APP, CICC released a research report stating that according to Gamma Data statistics, the revenue of China's gaming market in 3Q24 reached 91.8 billion yuan, a 9% year-on-year increase, a 23% quarter-on-quarter increase; among them, mobile games increased by 1% to 65.7 billion yuan, PC games increased by 0.4% to 16.9 billion yuan, and console/stand-alone and other games driven by "Black Myth: Wukong" and others achieved a 267% year-on-year growth to 9.2 billion yuan. The recent launch of new games and the revitalization of classic products have driven the overall size of China's gaming market to increase quarter-on-quarter in the past two quarters (2/3Q24). Looking at a monthly view, the overall market size saw a quarter-on-quarter increase from May to August, a slight decline in September due to seasonal factors, but maintained a year-on-year growth (+15%). Valuation-wise, it is suggested to pay attention to the valuation improvement opportunities for game companies with quality new games waiting to be launched.

CICC's main points are as follows:

The growth rate of the market size is warming up, with longer entertainment time during the summer and high growth driven by high-quality new head games.

The recent launch of new games and the revitalization of classic products have driven the overall size of China's gaming market to increase quarter-on-quarter in the past two quarters (2/3Q24). Looking at a monthly view, the overall market size saw a quarter-on-quarter increase from May to August, a slight decline in September due to seasonal factors, but maintained a year-on-year growth (+15%). In terms of mobile games, they have maintained a relatively stable performance: from a time perspective, according to QuestMobile, the absolute monthly usage time of game apps has been continuously increasing since May this year until a slight decrease in September, showing a similar trend to revenue. Apart from mobile games, there have been catalysts such as the launch of "Black Myth," the release of "Eternal Abyss" for PC, and the return of Blizzard games.

The industry has seen frequent highlights, with a focus on the steady operation strength of classic products and growth opportunities in segmented tracks.

Classic game IPs have strong appeal. Typical IPs like "Dungeon & Fighter" and "Hearthstone" have strong appeal to IP audiences. According to Gamma Data, "Dungeon & Fighter" achieved revenue of 6 billion yuan in the first month; "Hearthstone" returned to the top 15 in iOS game bestsellers list at the end of September after its domestic release, with the producer stating that the user base has "surpassed any point in the game's history" after its domestic release.

The renewal of old games with new card pools, new activities, and new gameplay has shown quite bright performance, typical examples include Peace Elite, Identity V, Sky: Children of the Light, etc.

The female-oriented track presents high vitality, typical examples are the origami game "Love and Deep Space", NetEase's "Realm of the Otherworld", etc., high-quality card pool updates driving the game to rise in the best-selling charts.

The heat of derivative products is increasing, such as Genshin Impact's authorized release of the battle card game "Seven Saints Summon", Identity V's physical collection card "Etching Time", Egg Party plush toy hangers and standees, etc.

Actively exploring overseas markets, revenue from domestically developed games in China increased by 21% to $5.2 billion in 3Q24, with sales of Myth of Soma driving growth overseas, Endless Winter (iOS+GooglePlay overseas revenue in August/September continued to grow), Honkai Impact 3, PUBG Mobile, and other overseas performances continue to shine.

Focus on the progress of new game testing and the valuation enhancement opportunities brought by new product cycles.

Concerning new games, all major manufacturers are advancing product testing in the fourth quarter. Products to watch include Perfect World's "Swordsman World" (10/18~31 paid test), XD Inc's "Yise" (10/24 third test), 37 Interactive Entertainment Network Technology Group's "Douluo Continent: Soul Hunting World" (pay-test recruitment in October), Beijing Ultrapower Software's "Code DL" "Code LOA", g-bits network technology's "Ask Sword Longevity" "Staff Sword Legend", Kingnet Network's "Douluo Continent: Rxevil Legend" (first test ends on 10/16), CMGE's "Swordsman World" (10/15 paid test) etc. In terms of valuation, it is recommended to focus on the valuation enhancement opportunities of gaming companies with reserves of high-quality new games waiting to go online.

Regarding targets: Focus on the basic resilience under the new product cycle, catalyzed by AI applications. A-share recommendations include g-bits network technology (603444.SH) / Kingnet Network (002517.SZ), while Hong Kong and US stock recommendations include NetEase-S (09999) / XD Inc. (02400) / Bilibili-W (09626) etc.

Risk factors: Industry policy fluctuations, intensified industry competition, rising user acquisition costs, game performance falling short of expectations.