Domestic game version number restart issuing agency: the game industry is expected to pick up

Beijing, April 14 news (reporter Niu Guyue) After 8 months, the approval of domestic online game version numbers ushered in a restart, and the game industry recovery signal was enhanced.

On the evening of April 11, the State Press and Publication Administration announced the "Approval Information for Domestic Online Games in April 2022", announcing that the game version numbers that had been suspended for more than 8 months were officially resumed. A total of 45 games have obtained version numbers this time, of which only 5 are client platforms, 1 Switch game console, and most of them are mobile platform games, all of which were approved on April 8. This is the first batch of domestic game versions that have been issued this year since August 2021.

CITIC Securities pointed out that the resumption of the first batch of domestic online game version numbers in 2022 is an affirmation of the rectification effect of the game industry in the past 8 months. For the policy orientation of the game industry, adhering to the strategy of high-quality content to games and reducing game addiction, strengthening the protection of minors, and encouraging going to sea will become the long-term development path of the game industry in the future. Agencies believe that with the resumption of game version numbers, the game industry as a whole is expected to pick up.

(Screenshot from State Press and Publication Administration)

Suspension of 8 months of re-issuance: The overall game approval is tightening, and the trend of high-quality in the game industry is obvious

The game version number is the abbreviation of the approval number approved by the State Administration of Press, Publication, Radio, Film and Television for the operation of relevant game publications, and is reviewed and issued by the State Administration of Press, Publication, Radio, Film and Television. According to the regulations, all online games must complete the version number application in order to allow domestic users to recharge and pay and officially go online. For online games, the game version number is equivalent to the "quasi-birth certificate" and the "pass" of online publishing and operation, which is closely related to the progress of the company's new games and the profitability of developers.

The list of the approved version numbers includes "Dream Voyage" operated by A-share listed company 37 Interactive Entertainment (002555.SZ), "Tower Hunter" operated by Gigabit (603444.SH), and Youzu Network (002174. SZ) operated the "Chronicles of the Three Kingdoms: Pocket Battle", Zhongqingbao (300052. SZ) operated the Switch game Caster, Kaiying Network (002517. SZ) under the "Legend of the Dragon", "The Way Forward", etc., as well as the Hong Kong listed company Dream World (01119. HK), Heartbeat Company (02400.HK) and other game products.

Galaxy Securities believes that in terms of product ownership, the companies that have obtained the version number this time are mainly domestic second-tier game manufacturers and small and medium-sized game manufacturers; from the perspective of quantity, there are 45 games that have passed the approval this time, which is lower than the average number of version numbers issued during 2020, and the overall trend of game approval is still gradually tightening, and the trend of high-quality in the game industry is obvious.

According to the statistics of the official website of the State Press and Publication Administration, 755 games in 2021 have obtained version numbers, compared with 1405 in 2020, down 46.26% year-on-year, and have achieved 4 consecutive declines since 2018. Previously, the version number of domestic games maintained an average of more than 80 per month. Since August 2021, in response to the tightening of supervision on content approval, protection of minors, game play and other aspects, the domestic game version number has been in a suspended state, and as of this release, the current round of game version numbers has been suspended for up to 263 days. It is worth noting that in 2018, there was also a 265-day suspension of the game version number. On March 29, 2018, the former State Administration of Radio, Film and Television issued the Notice on Important Matters Concerning the Approval of Game Declarations, indicating that due to institutional reform, the progress of game approval work will be affected. Until the restart of distribution in December of that year, the approval of version numbers was more stringent, and the number of approved game versions was significantly reduced compared with before the suspension.

Compared with the suspension of the two rounds of game version numbers, Anxin Securities Research Report believes that the two suspensions have forced the game industry to become high-quality and go to sea. Among them, the focus of the first round of suspension is to reorganize the order of the game industry, regulate the number of new games, and the policy orientation is to encourage high-quality games, which brings the result that the game industry has been greatly cleared, entering the stage of attaching importance to product quality, and the industry competition pattern is more concentrated on the head; and this round of restart and distribution focuses on the implementation of minors' protection, strengthening the control of minors' game duration (anti-addiction) and content (health). The regulatory level affirms the cultural value of high-quality games and encourages games to go to sea. During the period when the version number was discontinued, going to sea became the standard self-help action of domestic small and medium-sized game manufacturers, and the overall revenue scale of domestic games increased rapidly.

Guosen Securities also pointed out that in the issuance of version numbers, the proportion of products from head manufacturers is not high, which sends a signal to small and medium-sized companies: volume is not the key, and game production focuses on quality. At the same time, it also shows that the game market is diversifying and decentralizing, and the boutique and diversification of products require game companies to focus on consumer demand, focus on content and gameplay innovation, high-quality long-term development and stable operation, which will become a well-thought-out development topic for game companies.

Boost market confidence: The gaming sector and Chinese game stocks collectively strengthened

Affected by the news of the restart of the game version number on the evening of the 11th, as of the close of the 12th, the overall increase of the online game sector reached 3.30%, of which 56 stocks rose, 0 stocks were flat, and 6 stocks fell. Specifically, Glacier Network, Tianzhou Culture, Zhongke Cloud Network, Dasheng Culture, and Youzu Network ranked in the top five of the plate increase list, with increases of 19.98%, 10.18%, 10.09%, 10.06%, and 10.05% respectively. In the U.S. stock market, as of the close of trading on April 12, NetEase rose 2.12%, Bilibili rose 7.23%, Douyu rose 2.42%, and Huya rose 2.59%.

Essence Securities pointed out that the version number is restarted and issued, and the game sector is expected to usher in The Davis double-click. The current valuation of the game sector is at a low level in the past 2-3 years, and it has been in a state of valuation suppression after the substantial suspension of the game version in August 2021, and it is expected to start the first round of rebound after the version number is restored, and gradually repair the valuation level of the plate. In terms of performance, after the release of the version number is resumed, the pace of new product launches of game companies will accelerate, and the game industry is expected to usher in a new round of performance drive.

Guosen Securities pointed out in its latest research report that looking back at the game industry in the past year, affected by the issuance of version numbers, since August last year, the valuation of the game sector has continued to decline, although the growth rate of the game industry is still relatively stable, but overall, the market expectations are extremely pessimistic, and game companies are generally undervalued.

In terms of performance, among the 14 game companies that have disclosed their financial reports for 2021, only Tencent and NetEase have achieved a net profit of more than 1 billion yuan in the game business. According to Wind data, 30 A-share game companies disclosed their 2021 performance forecasts, of which 6 lost the first, 9 continued to lose, and 4 pre-reduced.

Among them, Starlight Entertainment (300043. SZ) has the largest change, with an expected loss of 706 million yuan to 495 million yuan, a year-on-year change from profit to loss, down 2813.92% to 2002.82%; Electric Soul Network (603258. SH) expects to achieve a net profit attributable to shareholders of listed companies in the first quarter of 2022 by 25 million to 35 million yuan compared with the same period last year, a decrease of 24.52% to 34.32% year-on-year; the 2021 financial report released by Heartbeat Network shows that Heartbeat Network lost 864 million yuan for the whole year; blue harbor interactive (08267.HK) lost 42.46 million yuan in 2021 game business; Flying Fish Technology (01022. HK) adjusted net loss for 2021 was $76.62 million, a loss of 317.7% year-on-year; Fingertip Jump (06860. HK) lost $517 million in 2021.

According to the "2021 China Game Industry Report" released by the China Audio-Visual and Digital Publishing Association, the sales revenue of the local game market in 2021 was 296.513 billion yuan, although it increased by 6.4% year-on-year, but the growth rate has been reduced by 15% compared with last year. According to Tianyancha data, in less than a year after the game version number was stopped, a total of 22,000 game-related companies in China were cancelled. The number of cancellations in 2020 is about 18,000, and in 2019, it is about 16,000, and most of them are small and medium-sized game companies.

Guosen Securities reported that from the supply side, the issuance of version numbers helps to increase the supply of the industry. In recent years, the growth rate of domestic game users has slowed down significantly, and the growth of the industry brought about by the demographic dividend has become increasingly peaked, in the medium and long term, the launch of new products and the increase in supply will help stimulate consumer demand and become the driving force for the growth of the industry, thereby driving the performance growth of the industry and listed companies.

On April 14, the online game sector as a whole fell 0.08%, of which 32 stocks rose, 4 stocks closed, and 26 stocks fell. As of the 14th, the online game sector has risen -3.43% in the past week, -3.26% in the past Month, and -3.26% in the past quarter.