On June 25th, Zhifutong Finance APP learned that the website of the National News Publishing Administration disclosed the approval information of domestic online games in June 2024, and 104 domestic online games were approved. This is the fifth time that the number of single approvals for domestic online games has exceeded 100. The previous four times were 105 games in December 2023, 115 games in January 2024, 111 games in February 2024, and 107 games in March 2024. Haitong Securities believes that the demand for the game market is still strong. With the normalization of version number issuance, major game developers are expected to continue to release high-quality supply, which will continue to boost the industry's business climate. In addition, it remains bullish on the trend of AI applications, and AI terminals are expected to bring broader user demand scenarios. The focus is on the internet and game giants with a reserve of high-quality products.

Specifically, the 104 approved domestic online games include Tencent's "Locke Kingdom World," Asia Vets' "Advetu" "Extraordinary 0516" "All-Star Awakening" "Time Order," G-bits Network Technology's "Friends Digging Treasure" "Questioning Sword Immortal," 37 Interactive Entertainment Network Technology Group's "Douluo Continent: Hunting Soul World," and more.

Since the beginning of this year, game version number issuance has maintained a frequency of one batch per month. So far this year, a total of 689 new games (including 61 imported games) have obtained version numbers, compared with 549 version numbers (including 27 imported games) issued in the same period last year.

From an industry perspective, there were fewer new games in the Q1 2024 game sector, and the overall market sentiment was somewhat tepid, but the market size increased instead of decreasing according to data. According to data from the Game Industry Committee, the market size of the game sector in Jan-March 2024 increased year-on-year, and only slipped 1.93% year-on-year in April. The market size for the first four months reached RMB 95.1 billion, a year-on-year growth of 5.63%, higher than the Q1 5.3% GDP growth rate. At the same time, AI games continue to land, and the game industry transformation driven by AI is getting closer.

According to Game News, Perfect World is developing two AI games: "AI Apartment: Virtual Testimony" and "AI Detective Collection." "AI Apartment: Virtual Testimony" is the world's first script-killing game driven by GPTAI. Except for the plot setting, all other content is produced by AI, including video. It has now been pre-ordered on platforms such as Steam and TapTap.

Wensheng Video enables game production and gameplay innovation, with the potential to increase commercial space. For example, Sora has made breakthroughs in video generation, content logic consistency, and video framing, among other areas. On the one hand, technology has revolutionized the content creation process and lowered the threshold for game production, which is expected to promote the landing of more innovative projects and encourage the rise of independent games and diversified content ecosystems. On the other hand, models similar to Sora's Wensheng video have profound implications for iterative gameplay and user experience optimization after going live.

In addition, AI also provides more possibilities for personalized plotlines, NPC design, and other aspects, further optimizing users' immersive experiences. At present, domestic games that use AI to achieve gameplay innovation include Netease's "NieR: Automata," which features high-intelligence NPCs, AI face creation, AI-created poetry and painting, and AI story interpretation within the game.

With the continuous iteration of AIGC technology, the cost reduction and efficiency improvement effects brought by AI will become more pronounced, and commercial-level native AI games are getting closer and closer. The integration of AI and games is expected to create new gameplay and gaming experiences, further opening up game monetization space.

Zhejiang Securities pointed out that looking back at the history of the game sector, the main valuation low point was during the suspension of game version numbers in 2018 and the period of tightening regulations related to the protection of minors in 2021, when the forecast P/E ratio for game index heavyweight stocks was around 10 times. At the current time point, the estimated values of game index heavyweight stocks have approached the 10 times level. According to Wind data, as of May 31, the 24EP/E of the top five weighted stocks in the game (CITIC) index were 11/12/13/14/17 times. At the current time point, the game sector is already at a good left-side investment opportunity. In addition, given the important catalyst in June, focus on the game sector.

Guotai Junan believes that with the normalization of version number supply and the gradual opening of product supply in the game market, the overall game industry is at a valuation low point. Companies with rich and quality content reserves and solid fundamentals will be the first to recover.

Tencent Holdings (00700): It is expected that in the second quarter, the new mobile game "DNF" and other old games such as "King of Glory" will recover, and with reference to the 23% quarter-on-quarter growth of deferred income in the first quarter, game revenue is expected to accelerate growth. With the gradual release of new games, it is expected that the growth rate of game revenue will bottom out and rebound, and the development of the small game business is also worth looking forward to.

Zhejiang Securities stated that with the normalization of version number supply and the gradual opening of product supply in the game market, the overall game industry is in a valuation low point. Companies with rich and quality content reserves and solid fundamentals will be the first to recover. It is now a good opportunity to invest in the game sector on the left side, especially given the important catalyst in June.

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This time, 104 domestic online games were approved, including Tencent's "Locke Kingdom World," Asia Vets' "Advetu," "Extraordinary 0516," "All-Star Awakening," "Time Order," G-bits Network Technology's "Friends Digging Treasure" "Questioning Sword Immortal," and 37 Interactive Entertainment Network Technology Group's "Douluo Continent: Hunting Soul World."

Netease-S (09999): Mobile games continue to show strong growth momentum, with several games achieving new highs. The company's 1Q24 game revenue was 20.4 billion yuan, a year-on-year increase of 10%, with mobile game revenue increasing by 19% year-on-year, maintaining a strong momentum mainly driven by games such as 'Nishuihan' and 'Danzaiparty'. A new cycle of new games will begin in the third quarter. In addition, the return of Blizzard games in the future is also expected to bring incremental revenue to the company.

Bilibili-W (09626): The mobile game 'Three Kingdoms: Determination of the Dynasty' that was published by the company has reached the third place in the iOS bestseller list, and is expected to drive the growth of annual game revenue. During the B station 618 period, the GMV of goods sold increased significantly year-on-year, and the platform monetization ability continued to improve.