At present, pessimism has been fully released, and the trend of valuation repair is obvious. Combining AIGC-related technological breakthroughs may increase the productivity level of the entire game industry in the long term.
The Zhitong Finance App learned that Galaxy Securities released a research report saying that the short-term systemic decline in the industry at the beginning of the year did not change long-term value, and it is expected that the implemented regulatory policy documents will be relatively soft. At present, pessimism has been fully released, and the trend of valuation repair is obvious. Combining AIGC-related technological breakthroughs may increase the productivity level of the entire game industry in the long term.
The bank's proposal focuses on two directions: 1) companies that account for relatively high revenue from overseas game business and are likely to be less affected by policies: Shenzhou Taiyue (300002.SZ); 2) leading game companies with strong R&D strength, large R&D investment, abundant reserves, and sustainable development advantages: Tencent Holdings (00700), NetEase (09999), Perfect World (002624.SZ), Kaiying Network (002517.SZ), and Gbit (603444.SH).
Galaxy Securities's views are as follows:
Incident: On April 8, the State Press and Publication Administration announced approval information for games imported in April. A total of 14 games were approved. Among them, 6 games received the mobile version number, 4 games received the client version number, 3 games received the console version number, and 1 game received the mobile-client version number.
Distribution intervals have been shortened, and the supply side continues to improve: in terms of quantity, a total of 14 imported games have been approved this time, which is the second batch of imported game editions in the year. This is a decrease from the previous batch of 32 models in the previous batch (February). Considering the recent rise in the overall number of versions distributed, the number of domestic game versions has broken 100 for four consecutive months, and the interval between imported game versions has been shortened from about every 4 months in 2023 to nearly every 2 months. We believe this is a positive sign that the regulatory authorities will continue to release to the industry. Stable distribution of versions is expected to continue in 2024, which will drive the supply side of the industry to continue to improve.
New games from many companies have been approved, and the game category is rich: in terms of product ownership, “Mega Man 11” by Tencent has been approved, and NetEase has not received any game approval in this batch. Other listed companies: Games such as “Divergent Million King Arthur: Ring” by Perfect World, “King of the World” by Gibbit, “Beyond the Threshold Space” and “Building a Dream Water Town” by Phoenix Media, “Servant Soul Xiao” and “Destiny Restart” by Oriental Pearl, “Monster Paradise” by 439, and “Sonic the Hedgehog Team Racing” by China Mobile have been approved.
AIGC technology continues to advance, and the game industry is expected to benefit: With the recent release of Wensheng's video model Sora, the basic world model Genie, and the 3D modeling tool Dust3r, we believe that currently AIGC already has some productivity value: with the continuous iterative advancement of technology, AIGC technologies such as Wensheng Video and AI 3D modeling can help game development, which is reflected in shortening the game production and development cycle and reducing game development costs, thereby driving the entire game industry forward.
Investment advice: We believe that the short-term systemic decline in the industry at the beginning of the year will not change long-term value, and it is expected that the regulatory policy documents to be implemented will be relatively soft. At present, pessimism has been fully released, and the trend of valuation repair is obvious. Overlapping AIGC-related technology breakthroughs may raise the productivity level of the entire game industry in the long term. It is recommended to focus on two directions: 1) companies that account for relatively high revenue from overseas game businesses and may be less affected by policies: Shenzhou Taiyue (300002.SZ); 2) leading game companies with strong R&D strength, large R&D investment, abundant reserves, and sustainable development advantages: Tencent Holdings (00700), NetEase (09999), Perfect World (002624.Z), Kaiying Network (002517.SZ), 37 Entertainment (002555.SZ), Gbit (603444.SH), etc.
Risk warning: the risk of tightening industry policy regulations, the risk of increased competition in domestic and foreign game markets, the risk of new game launches falling short of expectations, the risk of losing game users, and the risk that AIGC technology development falls short of expectations.