According to Gamma data, in the first half of the year, the large cap of PC games increased by 2% year-on-year, mainly driven by the popularity of fearless covenant, eternal damnation, and new games such as Mingchao. Considering the increase of new games and the intensifying competition in categories such as secondary elements, it is expected that the revenue of mobile games in mainland China will maintain high single-digit growth year-on-year in the second half of the year, with the third quarter slowing down to single digits mainly due to the high base of games like Nishuishan, and the fourth quarter recovering to double digits. Bullish on the contribution of key new games such as MDnF and the stable operation of old games, maintaining the expectation of 8-10%/4-5% growth for China's domestic mobile games/PC games at the beginning of the year. Recommended: Tencent (00700), Netease-S (09999).
Bocom International's main points are as follows:
Mobile games: New games are accelerating their launch, and intensified competition in categories such as the secondary yuan is expected to maintain high single-digit year-on-year growth for China's domestic mobile game market in the second half of the year. According to Bocom Intl.'s estimate, the mainland China mobile games market is expected to increase by 8-10% year-on-year in the first half of 2024, with growth in the second quarter outpacing first quarter growth due to the launch of new games. Considering the increase in new games and intensified competition in categories such as the secondary yuan, it is expected that the revenue of mobile games in mainland China in the second half of the year will maintain a high single-digit year-on-year growth, with the third quarter possibly slowing to a single digit, mainly due to the high base of games like "Nishuihan," and the fourth quarter possibly bouncing back to a double-digit growth rate. Looking at the game types, Chinese mobile game players still prefer medium and heavy games, with strategy, action, and RPG revenue scale leading the way, accounting for 19%, 19% and 15% respectively in the first half of the year.
The year-on-year growth rate of the online game market may slightly accelerate to the mid-single digits. According to Gamma Data, in the first half of the year, the large-cap online game market increased by 2% year-on-year, mainly driven by the popularity of games like "Fearless Contract," "Eternal Dark," and new games such as "Mingchao." The popularity value of "Dungeon and Fighter" decreased by 39% year-on-year, but it has stopped falling since March. Considering the launch of multiple new games and the return of the "World of Warcraft" national service, which will offset the negative impact of "Dungeon and Fighter," the large-cap online game market is expected to increase in the mid-single digits in the second half of the year.
The small game market maintains high-speed growth. According to Gamma data, in the first half of the year, the market size of small games was 16.6 billion yuan (RMB), a year-on-year increase of 61%, of which the proportion of in-app purchase revenue increased by 6.4 percentage points to 55%. WeChat small games announced that its MAU exceeded 500 million, with an average daily usage time of more than one hour and a 14-day retention rate of more than 50%, showing that small games continue to penetrate more people and strengthen user awareness.
Industry trends: 1) Domestic/imported version numbers maintain normal monthly/two-month frequency, and the State Council issued the "Opinions on Promoting the High-Quality Development of Service Consumption," mentioning online games and esports, Guangdong launched a trial of new game APP registration. 2) Game companies take down some Android channels, which may promote the release of mobile game profits.
Investment insights: bullish on the contribution of key new games such as MDnF and the stable operation of old games, maintaining the expectation of 8-10%/4-5% growth for China's domestic mobile games/PC games at the beginning of the year. It is recommended to pay attention to Tencent (15 times the 2024 PE ratio), consider adding positions in MDnF stable increments, maintaining the long-term operation of old games, while overseas Supercell flagship mobile games release growth potential, and it is expected that mobile game revenue in the second half of the year may accelerate growth (15%, consistent with VisibleAlpha's expectations). Netease-S (12 times the 2024 PE ratio) had lower-than-expected performance in the first month of the mobile game eternal damnation, and mobile game growth in the second half of the year may be lower than current expectations, but the recovery trend of PC games remains unchanged, and the overall game performance may be in line with expectations.