Huang Yue: The game version number is restarted, and the spring of the game industry is coming?

How does the reboot affect the gaming industry?

Good afternoon, April 12th to share with you the investment opportunities in the game industry. Why talk to everyone about this topic? I believe that everyone has also seen the news, the day before yesterday, the State Press and Publication Administration officially released the approval information of domestic online games in April 2022, and a total of 45 games were approved. This means that the domestic game version number is restarted after 8 months.

The last time the domestic game version number was released should be in late July 2021, so this time it was about eight months later, and the entire game version number was re-released.

Then this listed company for the game is undoubtedly a good thing, because at present, for domestic game listed companies, from the perspective of the proportion of the main business, the main mobile game accounts for the vast majority, then many mobile games are to rely on newly released games. When the newly released game was just released and listed, the number of active users and the number of paid users were relatively large, so after the re-release of the version number, the game company was able to send new games, so this was undoubtedly beneficial to the improvement of their entire operating performance.

And the game version number has actually been speculated by institutions since the beginning of this year, and everyone wants to know when this version number will be issued. So far, it should be said that it is a good landing.

On April 12, the overall market trend of the game sector, the opening may be relatively fierce, the game Shanghai-Hong Kong-Shenzhen ETF (517500) opened up 9.61%, the game ETF (516010) opened up 6.14%, so everyone saw the whole in the morning and fell back a part. But overall, the version restart is undoubtedly a good thing.

Then we still have to return to an investment logic of the entire game sector, after all, everyone is more concerned about these problems. What kind of investment is the entire game industry? Is it a growth sector, or a cyclical sector, or a value-based sector? In addition, after the release of the version number, it will definitely help the operating performance of listed companies, so how much impetus can it have? Or is it not a long-term investment logic.

I'm going to talk to you about some of this. So first of all, let's briefly talk to you about the overall situation of the game section. That includes its profit model, and what information has been reflected in the gaming company's stock price so far, and then what information has not.

In addition, we will also talk about an investment logic in the game sector at this current point in time. From the perspective of conclusions, we definitely believe that at this point in time, the entire game sector should say that the investment value is relatively large, in fact, the version number restart we think is more of a catalyst, or a troublesome factor at the industry level before is the landing, but overall, the version number restart this thing is not very affecting the long-term investment value of the game sector, because the market itself this year for the release of the version number has always been expected in it, but do not know what time to send.

Therefore, for many investors, it should be said that there have been some expectations for a long time. Because everyone believes that from the perspective of business performance, this year's game companies are still more dependent on newly released products. Constantly releasing new products is also a prerequisite for a game company to maintain sustainable operations. Then from a regulatory point of view, the suspension of the version number itself is related to a series of problems within the industry that need to be rectified, including the control of the play time of teenagers and some controls of youth payment, as well as other aspects including compliance aspects, publicity and value guidance. After a period of rectification, it should be said that sooner or later it will be released, otherwise how can this industry survive?

So what we want to discuss later is, after a stone in the heart of this game industry lands, how much investment value does this sector have? In the final analysis, it still depends on a long-term investment logic of the entire game sector.

Second, the development process of the domestic game industry

Speaking of long-term investment logic, let's first review a historical situation in the game sector. If you are an investor who likes to play games, you may know more about the game industry, I myself have actually been in contact with games since I was in elementary school, and at that time it was still a red and white machine, including xiaobawang, a device that can be used for learning and playing. The enlightenment games of the older generation of gamers in China have entered the country through these platforms.

Then the development of the domestic video game market should be said to be divided into several stages, the stage of enlightenment, there is no doubt that some overseas including red and white machines, ah, some other console games into the country. Later, a variety of games also arose on the computer side, and I remember the earlier ones were "Wehrmacht Headquarters" and so on. After that, the so-called terminal game gradually appeared, that is, using the computer as a game device to play the game. So this piece of the early days is actually to buy game products to pay for such a business model, including everyone now look at this large number of console games basically or pay to buy games such a form to achieve business performance.

Then later, the entire end game has been derived from online games, then online games in the early days of birth are mainly through the payment to buy game length to obtain revenue, including domestic online games earlier like "Legend", including some online games like Japanese and Koreans, including like "Magic Baby", "Miracle" and so on. Later, the entire large online games in Europe and the United States include like "World of Warcraft", and some other online games, the vast majority of which are in the form of point cards, that is, you pay to buy the length of the game to get revenue.

But after the whole country gradually evolved into props to pay, then I have the impression that China's earlier like the giant's "Journey" began to appear such a model of prop payment, and then the entire online game payment model is gradually like props, skins this value-added payment model, including everyone looks at the current more popular online games such as "League of Legends", you yourself play this game does not need to spend money, it is free, but you say you want to buy heroes, including you want to buy skins, That's all paid, which forms a major source of revenue for game companies.

In fact, the operating performance of the vast majority of listed companies in China mainly comes from mobile games. We've also looked at a statistic. I have the impression that mobile games in China account for about 75% of the game market.

In fact, on the one hand, it is the effective support of the supply chain after the entire Apple OEM in China. On the other hand, in fact, there are many deep-seated reasons, including the cost of the entire domestic Internet, you can go overseas to see, the cost of domestic Internet access is relatively cheap. Then the three major operators themselves also bear a lot of social responsibility, for the domestic residents to bring such a cheap network fee, then on the basis of cheap network fees, we combined with the advantages of this domestic FOUNDRY cost, to Xiaomi as the representative of the launch of smart phones, this low-cost smart phone and our entire domestic smartphone penetration rate increased rapidly, then this kind of common factor has contributed to the vigorous development of the domestic mobile game market.

In fact, gamers who love to play games know that the foreign mobile game market is not a core market, of course, its entire mobile game market in the overseas market share is relatively large, but it is far from being able to compare with the dominance of mobile games in China.

Then foreign countries may include more host games, including terminal games, then this kind of audience is a lot, because mobile games are due to some objective constraints and restrictions of mobile phones, electronic devices, your control of the entire game, including screen, sound and sound quality, relative to the host game and terminal game This effect is still to be discounted. But the main advantage of mobile games is that it can make the most of your fragmented time. For example, if we play a terminal game, it may be a large game, such as a role-playing game of RPG, and the time invested in a game may be relatively long. But the mobile phone is relatively speaking, for example, I play a round of "League of Legends" may be about ten minutes or twenty minutes or so, to make full use of the fragment time. On the other hand, the device is easier to carry, after all, the host game you have to bring a host, and you have to have this display device. If you use a laptop computer, the laptop gaming experience will decline compared to the desktop.

Therefore, on the whole, mobile games should be said to make full use of the advantage that the domestic smart phone price is relatively cheap, and then the telecommunications Internet fee is relatively cheap, and it has been quickly promoted. Therefore, at present, the domestic game market should be said to be dominant, and I just mentioned that it basically accounts for about three-quarters of the entire game market share.

Therefore, the operating performance of the listed company we mentioned on April 12, including the investment value of this sector, is actually mainly aimed at mobile games, because after all, the dominant player in the entire domestic game industry is mobile games. This is a big difference from abroad.

Long-term investment logic: penetration rate increase + consumption upgrade

This is a background at the industry level, so from an investment point of view, because I just mentioned mobile games. You can simply understand it as a derivative of a smart phone, or a value-added service of a smart phone. After I had the smartphone device, I found that this game can kill time, can bring me a good entertainment experience, and can take advantage of this fragmented time such as my commuting to work in the subway, so in this case, I may be willing to gradually try mobile games, which also attracts a large number of groups that are not gamers to start playing games gradually.

Then after playing the game, everyone knows that the vast majority of the current payment model of mobile games is still paid for props. In addition, there are some profit models that obtain operating profits through advertising or other forms. Of course, the most important form of operating profit is the payment of props.

At the level of the entire industry, the expansion of business performance has actually become two dimensions, one dimension is that the group of people I play games has gradually increased, or my customer base has expanded, so that the natural operation can be improved, which is a dimension. Another dimension is that although my customer base has not improved, the customer's ability to pay has improved, which is the so-called consumption upgrade. So in fact, for the game industry, for a long time in the past, its main framework is these two dimensions, one is whether the penetration rate can be improved, in other words, whether my customer group can be improved, and the other dimension is the improvement of the payment ability of the customer group.

From the perspective of the penetration rate of the customer group, the current users of the entire mobile game have exceeded 600 million, objectively speaking, it has almost entered a bottleneck period, so in the future, the possibility of us expecting the penetration rate of the game customer base to increase rapidly is not likely. But from the perspective of the overall rate of payment and the amount of per capita consumption, there is still a lot of room for improvement in this perspective. Therefore, from the perspective of the game industry, it should be said that its long-term growth is more to benefit from consumption upgrades.

Of course, do you think it is possible to increase the penetration rate? It is also possible, after all, that most of our current game group is still dominated by young people. The video game industry itself was not born for a long time, that is, decades of time, so most of the current older people, such as 40-50 years old and up, themselves have old and young, work including family will consume a lot of time, can be used to play games time may be relatively small. Especially from our look at a lot of foreign data, a large number of gamers themselves are gradually growing up from the adolescent generation. Therefore, the logic of increasing penetration rate also makes sense, because with our first batch of game players including post-eighty, basically post-eighty should be regarded as the first large-scale gamers, then like the post-nineties, post-zero, including some of the Z-era gamers we are currently mentioning, they themselves have been exposed to this electronic product since childhood, then their own acceptance of video games including familiarity should be said to be higher.

So early a group of gamers like the post-70s and post-80s may now be about 30s and 40s, but because they have been exposed to such an experience of video and audio entertainment as games since they were young, when they gradually get older, although the time they can play games is gradually decreasing, they still more or less retain the habit of playing games. Including I have been playing games since I was a child, but now I really don't have much time to play games, there is time to either study this investment, or to accompany my children, I really don't have time to play games again, but I have always had this habit of playing games. Then in the future, when I have time, including some of my fragments, I may also be willing to take my time, including money, to get such a game experience. Therefore, from the perspective of penetration rate, the penetration rate of the entire Chinese game industry is expected to be further improved in the future. After all, as we renew our entire demographic structure, it should be said that our group of gamers will grow stronger and stronger. However, the increase in this penetration rate will be objectively slower. Because it is more of an increase in penetration brought about by this update throughout the generation, it is not the same as the rapid increase in penetration of mobile games brought about by the rapid increase in the penetration rate of this entire smartphone before 2015, including 2016 and 2017.

4. Medium-term investment logic: the game goes to sea

Of course, there is also a medium-term logic, the medium-term logic is the game to go to sea, because if we look at the short term, the entire game industry is objectively speaking, it is indeed a relatively slow growth rate, because its last wave of growth is relatively fast when it is still accompanied by the rapid improvement of the entire smart phone brought about by the rapid increase in mobile game penetration. But what about after the big development? Relative overcapacity has been formed.

So a large amount of capital including groups began to enter the game industry, including everyone knows that Tencent is not the first to do games, is the later gradual entry into the game. With its strong social stickiness and its strong capital advantage, it should be said that it has occupied the position of big brother in the domestic game industry, and the remaining two, three and four are not as large as his volume.

On the other hand, under full competition, the domestic mobile game market began to be fiercely rolled in, and from the perspective of game operation, the entire publicity channel began to occupy more and more discourse power, including now some game companies began to choose to buy the amount of distribution to do the distribution, and the cost of the market level investment remained high. So it creates a relatively inward-volume situation. So if you look at the monthly line of the game sector, basically since the wave of bulls peaked in 2015, it has been a bear market, and everyone looks at the animation game index this year and hit a record low. Basically, it has fallen from one or five years to this year, and it has fallen for six or seven years. There is a performance in the middle, in 2020, due to the new crown epidemic caused everyone to stay at home, online consumption is popular, so during this time, the game sector has had a wave of relatively large market that lasted for about half a year, but then began to go downhill. In particular, last year's blockade of the entire game version, including the anti-monopoly of Internet companies, and other levels of supervision have also extended to the game field, so it should be said that there are some negative impacts on the entire valuation level and confidence level.

So standing at this point in time, the domestic game industry, it should be said that the main feature is that it has experienced this height of the inner volume for many years, then this inner volume is from our entire smart phone penetration rate gradually peaked, a large amount of capital into the game industry, on the one hand to promote the development of the industry, on the other hand, but also make the entire industry competition pattern gradually deteriorate. Including its distribution, the cost of ah and so on is high, so the level of the mobile game industry should be said to have experienced many years of fierce competition, and then the overall growth rate has gradually slowed down.

So in the medium term, there is a relatively strong growth logic is the game to go to sea, you can see that in recent years, there are some companies with relatively good performance, including some companies that are relatively favored by the market, and there are many major investment logics that are going to sea.

The contribution of overseas revenue to the entire domestic game industry accounted for about 20% in 2015. By 2021, it's almost 30 percent. It should be said that the speed of the whole improvement is very fast. In addition, that is to say, the scale of this mobile game in the whole country has probably exceeded 200 billion so far. The scale of overseas mobile games may be estimated to be more than 350 billion at present, and the entire overseas mobile game market space is relatively large.

Then the penetration rate of domestic game companies in overseas mobile games is about 20%, and this piece, we are especially in many of this medium and heavy category, such as this SLG, like some of this chicken-eating games, our market share is still relatively high. It should be said that it is also a manifestation of the domestic engineer dividend.

Then this may be different from the intuitive feelings of most gamers, because most of the old gamers mention domestic games, the first reaction is to feel that domestic games are not good, indeed there has not been a world-class game masterpiece in China so far, especially in the field of host games and terminal games, itself in Europe and the United States, its entire multimedia technology, visual technology, including script writing technology, or a relatively high threshold. Moreover, there is still a certain gap between the current level of this echelon of domestic and foreign countries. But here this is actually mainly concentrated in the end game and console games, in this field of domestic video games are mostly imported products, on the one hand, in the field of terminal games and console games the number of overseas game groups is far greater than the domestic.

On the other hand, it means that overseas copyright protection is relatively large, because I first talked to you about the model of console games and terminal games, most of which are game payment. Most domestic mobile games are more or props to pay, pay attention to the stickiness of the entire customer. Then the domestic stand-alone game industry, in the early days of the main problem is piracy, especially the end of the game appeared a large number of pirated games, which should be said to be a devastating blow to the domestic game industry. Therefore, from the perspective of the single-player game group, from the perspective of the entire practitioner, from the perspective of technical strength, there is a relatively large gap with overseas. But in the field of mobile games, objectively speaking, there is not such a big gap. The volume of mobile phone players in China itself is very large, and I just mentioned to you that it has almost exceeded 650 million. The entire huge base has spawned a very large scale of the entire domestic mobile game industry. I just mentioned to you that the scale of domestic mobile games is almost more than 200 billion, so overseas may add up to about 350 billion such a scale. Therefore, such a large group of mobile gamers in China also promotes the domestic mobile game development team, which is not bad compared with overseas technical strength, especially many may be dedicated to overseas markets, and everyone may not have heard too much about it in China.

And the game industry has a great feature is the strong Hengqiang. Any category of games, such as chicken-eating games, you see its entire sales flow, including the number of gamers is basically the first three games basically monopolized at least 90% of this game group. So its entire competitive landscape is basically that you can make a blockbuster game, and it can bring you a very strong level of cash flow.

Including everyone watching our Miha tour of this "Yuanshen" is also like this, including everyone can see that the yuanshen out of the sea this achievement is still good. Including in Europe and the United States, Japan, which are very mature markets in the game industry, its entire market share and overall operating performance are also very good. Therefore, this mobile game in the mainland is a relatively big logic for the growth of the entire game industry in recent years.

Because after all, at this time last year, the overall growth rate has slowed down. However, the growth rate of overseas markets is relatively fast. Because there is another advantage overseas, overseas game companies are more focused on console games and terminal games, but limit their expansion in the field of mobile games. And many overseas game groups, they prefer to play terminal games and mobile games, especially before there was a news, that is, a host game company overseas, he wants to port a host game to the mobile phone to do a mobile game, and then was boycotted by the majority of player groups. In this group of gamers, there is indeed a chain of contempt. Of course, it is not that the entire chain of contempt is reasonable, most of them are console game players who look down on the players of the end game, and the players of the end game look down on the players of the mobile game. The whole can also make sense, we just mentioned to you that you take the mobile phone as the game carrier, it is from the entire control, including its experience of this video is bound to have a gap with the host game and the terminal game.

Therefore, many overseas game manufacturers are on the contrary, because of its success in terminal games and console games, which limits its expansion in mobile games. Domestic game companies relatively do not have these baggage, so there are many domestic game companies overseas growth is relatively fast.

Then we also see that in the first half of 2021, the year-on-year growth rate of the entire game going to sea is about 10% at the industry level, a double-digit growth, which is objectively not easy in the entire game industry.

Therefore, a medium-term investment logic of the game sector is that the game goes to sea, and more is with the help of our engineer dividends, as well as the accumulation of long-term talents, technologies and customer groups in domestic mobile games, and the continuous improvement of the market energy rate of mobile games in the global market. In addition, the distribution channel share of the entire overseas game is slightly lower than that of the domestic one, and the profit level overseas is relatively higher for the game company.

V. Short-term Catalysis: Version Restart + Asian Games + Metacosm

So in the short term, there are also some catalysts, one of course is that the version number restart is a good landing. Of course, the positive landing, you see the entire game index is at a historical low, so the positive landing does not mean that the index will continue to fall. Because it has been falling for a long time, this piece of fundamentals is indeed expected to improve better. This is undoubtedly a real positive.

In addition, it also triggers a game supervision is not almost over, which is also a major factor restricting the entire game sector since the suspension of the release of this game version last year. Therefore, on the one hand, it is said that my version number has not been issued, which directly affects some of the operating performance of listed companies, on the other hand, it means that everyone does not know when this matter will end and when it will be an end.

So at present, the restart of the entire game version will also cause everyone to tend to think that the supervision of the entire game industry is almost over. There will be some new negative shocks in the future. This is another aspect of the valuation level of a positive.

On the other hand, the Asian Games, because this year's Asian Games will be held in Hangzhou, then the electronic economy is also included in several projects of the Asian Games. However, there are relatively few domestic listed companies involved here, and there are listed companies with Hong Kong stocks. Of course, it is more of an emotional factor, because in itself we will find that the electronic economy is an industry encouraged in China, including many cities, such as Shanghai, which includes the entire electronic economy, including some animation and game industries, as an industry that is more worthy of development and invests a lot of effort. So it's not that the whole industry will be like real estate, private education, including make-up education, including the Internet, and so on. We look at some of the current regulatory measures, which also focus on some requirements and restrictions on minors. And this piece, in fact, many of the listed companies of the game have exceeded the task, for example, in a certain age group is required to play the game for no more than a certain time, many game companies basically further compress that time, it should be said that the regulatory authorities for minors and adolescents to implement this regulatory requirements.

So here, on the one hand, the release of the version number is a direct boost to performance, on the other hand, the valuation level, everyone will think that the possible negative impact is almost over. The next step is back to fundamentals.

So let's look at the fundamentals, the fundamentals are actually more of a valuation, the current valuation level of the entire game sector is in history is an absolute low, the current valuation is about 15 times, historically, the valuation level of the entire game industry is about thirteen or four times to high, it can be about 30 times, probably in such a valuation range, because after all, the entire game industry objectively speaking, its growth rate has not been fast. So the investment logic of this sector is more to look at the valuation, and then look at whether its future growth is too big a problem. If I don't look at the problem, I will do the configuration at an absolutely low valuation level in history, and the cost performance is still relatively high.

From the perspective of the whole fundamentals, in fact, it is more about looking at the valuation. The valuation range is more about 2016 and after 2017, because before 2016 and 2017, the entire game industry accompanied by a rapid increase in smartphone penetration, and the penetration rate of mobile games also increased rapidly, so at that time, everyone looked at the valuation level and gave it a very high, but standing at the current point in time, the reference of the valuation level at that point in time was not strong.

Then the main reason for the strong comparability is that after 2017, it is basically a valuation level from thirteen or four times to 30 times higher. The current valuation level is about 15 times, which is basically at an absolute low in history.

So if you look at 15 times to 30 times, you feel that this number has not increased much, but if you look at the multiple, the valuation has also doubled. So if you look at it this way, the entire game industry at this point in time, the value of the allocation is indeed very high in the medium and long term, because the valuation is already very cheap, and we are currently seeing a lot of negative factors have gradually come to an end.

And then, there's the catalysis of the metacosm. When we were doing live broadcasting at the beginning of the year, we talked to you about the metacosm, and we thought that the metacosm was more likely to be based on a very good expectation of the future, and at that time we saw more small-cap stocks playing games. So at that time, it was true that the concept of metaversity was not very interesting, because we saw that very few of the game's listed metacosm could really land.

To be honest, I really don't have the ability to judge what kind of form the metaverse will look like in the future. But there is no doubt that the metaverse and the game industry have a point of convergence. Then a possible combination point here is AR/VR technology, and the most mature and commercial application of AR/VR technology is in the game industry. Including you can see this faceook acquired a do wear

Company of dai-style devices. In the future, the growth of this AR/VR game device can be seen, because it can be compared with our current host game and terminal game, if according to the annual shipment of host games, vr equipment game console shipments there is still a lot of room for growth. However, at present, the entire listed company is mainly concentrated in the listed companies in the consumer electronics sector. Then domestic game listed companies currently benefit from very few targets of VR games. Because most of them are not involved in this field at present, the main problem of this wearable game device is that the price is still too expensive, but in the long run, the price of consumer electronics itself will gradually decline, and after the popularization of AR/VR devices in the future, in fact, this piece is another flashpoint for game companies. Because our current mobile games are accompanied by smart phones or with the rapid popularization of hardware devices, the penetration rate of mobile games caused by them has increased rapidly, which has led to a very rapid growth of the entire game industry in those years.

So in the future, if the price of this AR/VR device can come down, there will inevitably be more and more domestic game companies to begin to get involved in the development of this AR/VR game. Moreover, we are basically at the same starting point as this European and American country.

Therefore, the level of the meta-universe is a combination point for the entire domestic game industry, but in a short period of time, at least this year, you said that you want to see the performance, I think you can't see it. So this piece is more of a game based on the concept of metaversity.

But in the future, with the derivation of the entire AR/VR device, then this piece can bring performance, and it is likely to bring about a big explosion in the entire game sector.

In addition, there is a concept of a metaverse, which is the so-called virtual form. It provides a concept, that is, I can design a plot of a new game inside the game, or I can further rewrite my virtual world in the virtual world, so this is completely different from the existing game logic.

Overseas is relatively mature is Robles, it is not actually a game, it is a game engine, you can design your own game through such a tool. Moreover, behind this engine there is a unified system of accounts. It is possible that this player in your game interacts with a player in another game. Of course, this is a goal for the future, and now it may not be achievable. In addition, it also involves some virtual currencies. After creating a virtual game, you can get revenue in the form of virtual currency. It has formed a value chain within it, so this is also a game industry with a relatively large connection with the metaverse.

VI. How to invest in the game sector?

So we stand at this point in time, in fact, more logic is still considered from the perspective of the value of the game plate configuration. The main logic of the game sector allocation value is that its valuation level has reached a historical low, and from the comparable valuation since 2016 and 2017, it is probably at an absolute low. And after the version number is restarted, in fact, it is more that the negative factors of the game plate have been digested. Of course, the landing of the version number itself is a positive factor, but in fact, the deep meaning it triggers is that some negative regulatory factors for the game industry may come to an end. So on the one hand, it is a good landing, on the other hand, it is actually beneficial to empty out of such expectations.

The logic of the medium term is that the game goes to sea, mainly in the fast-growing segments of mobile games. Then the long-term logic has two levels, one is that there is still room for the increase in domestic penetration caused by intergenerational renewal. On the other hand, in terms of the increase in the income level of residents, the volume of payment by the game player base in the game field is also expected to increase.

In the short term, one is the landing of the version number, which is directly positive. In addition, the Asian Games may have some emotional catalysis, and the metacosm may also have some emotional catalysis. So in the short term, I personally think that the metaverse is more of an emotional catalyst than the game sector, but looking further back, sooner or later we can see the performance. Because the current landing of the entire AR/VR device is still good, then the future actually depends mainly on when its price can be reduced, after the drop, many domestic game companies are likely to do games on this platform, to achieve the entire commercial level of profitability, is still in a relatively early stage.

If you are optimistic about this sector, you can also pay attention to our ETF products, the game Shanghai-Hong Kong-Shenzhen ETF (517500) and the game ETF (516010).

Everyone can judge according to their own risk appetite and configuration ideas. Of course, here we also have to do a good job of risk tips, our ETF products are stock-type funds, risk-return characteristics and stocks are relatively similar. Everyone must fully read the product's prospectus before purchasing, and on the basis of fully understanding such a financial instrument, combine their own risk preferences and the use time of their own funds to configure.