CITIC Securities: Game version number resumed issuance It is recommended to actively allocate high-quality companies with low valuations

Zhitong Finance APP learned that CITIC Securities released a research report that the first batch of domestic online game version numbers will resume issuance in 2022, involving a number of listed companies such as Heartbeat Company (02400), 37 Interactive Entertainment (002555.SZ), gigabit (603444.SH) and so on. CITIC Securities believes that the restart of the version number has affirmed the rectification effect of the game industry in the past 8 months, and for the policy orientation of the game industry, CITIC Securities maintains the previous view, adheres to the strategy of high-quality content to the game and reduces the addiction of the game, strengthens the protection of minors, and encourages going to sea will become the long-term development path of the game industry in the future. With the resumption of game version numbers, the game industry as a whole is expected to pick up. CITIC Securities believes that in the future, the game industry will be more inclined to high-quality content to games, and head game companies with strong research and development capabilities are expected to maintain competitiveness. CITIC Securities recommends actively allocating high-quality game companies with low valuations, including Tencent Holdings (00700), NetEase (09999), Heartbeat Company, 37 Interactive Entertainment, Gigabit, Perfect World (002624.SZ), Reading Group (00772), Bilibili (09626), etc.

In 2022, the first batch of domestic online game version numbers will be resumed, involving many listed companies such as Heartbeat Company, 37 Interactive Entertainment, and Gigabit.

In 2021H1, the domestic newly issued game version numbers maintained an average monthly level of about 80+, but since August 2021, the domestic game version numbers have been suspended. Since 2021, the regulator has also issued a series of regulatory policies for the game industry, covering the protection of minors, game play and content, game approval, game promotion, etc. After more than 8 months of strengthening governance, the domestic game version was resumed in April 2022, and a total of 45 games were reviewed this time, involving listed companies including the heartbeat company "Party Star", 37 Mutual Entertainment "Dream Voyage", Gigabit/Thunder "Tower Hunter" and "Box Fission", Youzu Network "Junior Three Kingdoms: Pocket Battle" , Jinshan/Xishanju "Sword Net 3 Origins", Chuangmeng Tiandi "Beware of Fire Candles", Friendship Time/Fun Friends "Zero Relic", Zhongqingbao "Casting TimeMaker", Baidu "Attack on rabbits", red game "The Way Forward" (developer Qian Qian Network (Kaiying Network Investment), Tencent Technical Support), etc.

CITIC Securities believes that the restart of the version number has affirmed the rectification effect of the game industry in the past 8 months, and for the policy orientation of the game industry, CITIC Securities maintains the previous view, adheres to the strategy of high-quality content to the game and reduces the addiction of the game, strengthens the protection of minors, and encourages going to sea will become the long-term development path of the game industry in the future.

For the protection of minors: At present, the proportion of minors' game flow has reached a very low level, and the length of time minors play is strictly limited.

For content and gameplay: CITIC Securities believes that the supervision mainly emphasizes strengthening the control of "kryptonite" (to a certain extent, strengthening the control of probabilistic payment mechanisms, eliminating kryptonism, kryptonism and excessive consumption behavior, etc.), reducing game addiction (changing various rules and gameplay designs that induce addiction), enhancing the awareness of fine products (improving the connotation of game culture, technical capabilities and content quality), resisting undesirable themes (resisting erroneous value orientation, pornography, bloody terror, money worship, "mother cannon", "beauty" and other themes), and cracking down" Skinning" mobile game behavior (no unauthorized change of game content, illegal operation of games, etc.).

For game approvals: Game approvals are expected to become stricter and more inclined to high-quality boutique games. The Publishing Bureau of the Central Propaganda Department issued the "Detailed Rules for the Scoring of Game Review", and began to pilot the game scoring system on April 1, after the final review of each game that applied for a version number, the game works will be scored by experts participating in the review from five aspects: "concept orientation", "original design", "production quality", "cultural connotation" and "development degree", and the scoring results will directly affect the final version number issuance. It is expected that the version number review will be more inclined to games with characteristics such as content orientation, high quality, and excellent Chinese cultural themes.

For going to sea: the policy level emphasizes cultural self-confidence and encourages excellent cultural content to go to sea. General Secretary Xi Jinping has repeatedly emphasized cultural self-confidence, insisting on telling Chinese stories well and spreading Chinese voices; the policy also encourages digital cultural products such as high-quality games to go global. China's game going to sea has made a breakthrough in stages, and it is expected to enjoy a higher degree of prosperity in the future. CITIC Securities expects China Mobile's overseas revenue to reach US$32.898 billion in 2025, cagr+20% in the next four years, corresponding to doubling the space in 2021 (104%).

With the resumption of game version numbers, the game industry as a whole is expected to pick up. CITIC Securities believes that in the future, the game industry will be more inclined to high-quality content to games, and head game companies with strong research and development capabilities are expected to maintain competitiveness. CITIC Securities recommends actively allocating quality gaming companies with low valuations:

Tencent Holdings: Tianmei's self-developed SLG "Return to Empire" was launched on March 29 and is currently ranked in the top 8 of the iOS game best-seller list, with long-term performance worth looking forward to; follow-up products include "Black Desert" (App Store set for April 27), "Dawn Awakening" (version numbered), "Dark Zone Breakout" (version numbered), "APEX Hero Mobile Game" (opened overseas soft launch on March 8), and the agent's "Heart of Noah" (App Store set for April 14) and "Magic Tower" Overseas version and other new games. In addition, the "DNF" mobile game has been launched in South Korea, and the game is also expected to be launched domestically in the future (time is uncertain). The advertising business is waiting for the macro-economy to improve and the video number will start commercialization at the end of the year; the cloud business aims to grow with high quality and the profit margin is expected to be optimized. The core business remains solid, and it is expected to achieve a net profit of 136.8 billion yuan for Non-IFRS in 22 years.

NetEase: "Diablo: Immortal" opened reservations, app store shows that it is scheduled to be launched on June 30 (to be determined); follow-up products include "Roar of War" (scheduled for May 26), "Harry Potter: Magical Awakening" overseas version (expected to be launched in Japan, Europe and the United States around Q2); "The Lord of the Rings" mobile game (expected to be launched in Hong Kong, Macao, Taiwan, Japan and South Korea in Q2); "Ghost of a Revelation" (has been approved), "Dead by Daylight" mobile game, "Forever Doom" mobile game, etc. The company's performance and product line are more certain, and it is expected to achieve a net profit of 22.3 billion yuan for Non-GAAP in 22 years.

Heartbeat Company: In terms of games, Flash Party has achieved a brilliant performance in the Japanese free list, T3 Arena plans to be officially launched overseas on May 26; 22 years of self-research reserves include: TorchLight: Unlimited (beta test in mid-April, expected to be launched overseas in 22H2), Sword of Suzuran (expected to be launched overseas in 22H2, deleted in China on April 14), Heartbeat Town (formerly known as "Creative World" has been published) and so on. TapTap user and revenue growth will benefit from version number issuance. The company expects to achieve 23-year breakeven through cost control and high certainty in ensuring the commercialization of the project.

37 Interactive Entertainment: The main game in the domestic and overseas markets ("Douluo Continental Soul Master Showdown", "P&;S") maintained a good performance; Hanbok "Song of the Cloud City" performed strongly (currently no. 7 on the best-seller list), and the best-selling ranking of Nichifu continued to increase after its launch in late February; the self-developed product "Chrono Legacy" (codename: C6) has been launched overseas, and the follow-up performance can be expected; and other self-developed products have been promoted normally. The company's performance is more certain, and it is expected to achieve a net profit of 3.2 billion yuan in 22 years.

Gigabit: the main product "A Thought of Escape", "Qingdao Mobile Game" to maintain a steady performance; the agent BIO family interactive product "Orbi Island" mobile game is expected to be launched within the year, after learning from the experience of Moore Manor mobile game, further optimization in numerical balance, content richness, game experience, test response is good, the current number of official website reservations exceeded 4 million, it is expected that Obi Island is expected to achieve a longer line of operational performance. The products that have been approved also include "Dawn Elite" and "Flowers Fall in Chang'an", which are expected to achieve a net profit of 1.8 billion yuan in 22 years.

Perfect World: The overseas version of "Magic Tower" is represented by Tencent, and the copyright and turnover share are expected to increase the company's performance; follow-up product reserves include "Tianlong Babu 2", "One Punch Superman: World", "Million King Arthur" and "P5", "The Country of Dynasty and Night", "Black Cat Strange News Society", Duanyou "New Immortal World" (has obtained the version number), etc., and the company's follow-up product reserves are abundant after the version number is resumed.

Yuwen Group: For the hidden target of the game version number, the company can extract the IP licensed game share, such as "Douluo Continent" and so on. This year's newly launched IP licensing product "Qing Yu Nian" is expected to flow 100 million to 200 million yuan in the first month. In the future, the company's head IP authorized game "Snow In the Knife Line" (photon studio development) and other head masterpieces are expected to be launched one after another, and the growth rate of subsequent IP derivative businesses is expected to increase rapidly.

Bilibili: Station B owns a number of unique two-dimensional games such as "FGO", "Kangong Riding Crown Sword", "Princess Link" and so on, and is an important publishing platform for young people in China. In terms of self-development and unique generation, in August 2021, Station B released 16 new games (6 self-developed, 10 unique generations); in terms of intermodal transportation, with the recovery of game version numbers, the industry boom is improved, which is expected to bring a positive boost to the intermodal transport business of Station B.